Interest free loans for pet owners launched, but is there a catch?
Pet owners can now get interest-free loans to pay for emergency medical treatment. Moneywise analyses how it works, and if it’s worth it.
What’s the deal?
CarefreeCredit offers loans at 0% APR over 12 months, or 9.9% APR over 24 months. The service has been running for over a year, though the company has only begun to promote the service directly to pet owners this month.
It will lend between £250 and £25,000 to pay for treatment for uninsured pets, including horses and other farm animals, or for treatment that isn’t covered by pet insurance policies.
How can it sell interest-free loans?
The company says it can afford to sell interest-free loans because it charges vets who sign up for the service £10/month, as well as a small arrangement fee on any loan granted, also paid by the vet.
CallfreeCredit will also make a direct profit on its two-year loans, as interest is charged at 9.9% APR representative.
What’s the catch?
There are a few key points potential borrowers need to be aware of before taking out a loan:
- The advertised rate will be offered to all successful applicants, though as with all credit applications it’s subject to a credit check. If you’re rejected for any credit application, this will be seen by other lenders and could affect your ability to borrow elsewhere.
- The loans are only offered via veterinary practices signed up to the scheme. They operate throughout the UK and 700 practices have signed up so far.
- The repayment terms are restrictive, as you’ll have to opt for a one or two-year repayment plan. Other commercial loans often offer more flexibility.
- As with all loans, you may be charged a penalty for late or missed payments.
So are the loans worth it?
If you can get it, the one-year loan is compelling as interest free loans are practically unheard of.
However, if you’re looking to take a loan over two years, much lower rates than 9.9% APR are available. For example, M&S and Sainsbury’s Bank both charge 3.5% APR on loans between £7,500 and £15,000 with repayment terms between one and five years.
To put this into context, if you’re borrowing £10,000 over two years, you’d pay £694 less interest with Sainsbury’s Bank than with CarefreeCredit.
You can also borrow cheaply using a 0% credit card. The best deal currently is the Post Office’s Matched Card, which charges no interest on purchases for 27 months, providing at least the minimum repayment is made each month.
However, in an emergency it’ll take time to arrange a new card or to get a regular loan, while CarefreeCredit says its loans are arranged instantly after the loan is approved and applications can be made in minutes.
Pet insurance should also always be considered if you have pets. Use a comparison site to find the best deal for you.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
A charge some brokers (and, increasingly, lenders) make for arranging your loan or mortgage, either as a flat fee or a percentage of the amount you wish to borrow. In order to look ultra-competitive in the best-buy tables, some mortgage lenders will offer mortgages with an attractive low rate and recoup any losses with a hefty arrangement fee.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.