Legal Definitions - interest-free loan

An interest-free loan is a type of borrowing arrangement where the borrower is only required to repay the original amount of money borrowed (the principal) without any additional charges for the use of that money over time. Unlike traditional loans, no interest accumulates, meaning the total amount repaid is exactly the same as the amount initially received.

Here are some examples to illustrate this concept:

• Family Lending: Sarah needed to buy a new refrigerator but didn't have enough savings immediately. Her sister, Emily, offered to lend her $1,000, with the understanding that Sarah would pay back the exact $1,000 over the next five months. In this scenario, Emily provided an interest-free loan because Sarah only had to repay the principal amount borrowed, with no extra cost for using Emily's money.

• Retailer Promotional Financing: A furniture store advertises a "0% APR for 12 months" offer on new purchases. Mark buys a sofa for $2,500 using this financing option. As long as Mark pays off the entire $2,500 within the 12-month promotional period, he will not be charged any interest. This is an interest-free loan for the duration of the promotional period, allowing him to spread out his payments without incurring additional costs.

• Employer Assistance Program: A company offers its employees an emergency relief fund, allowing them to borrow up to $5,000 for unexpected personal crises, to be repaid through payroll deductions over a year. An employee, David, borrows $3,000 after a medical emergency. His paychecks are then reduced by $250 each month for 12 months until the full $3,000 is repaid, with no additional fees or interest. This is an interest-free loan provided by his employer as a benefit.