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What is a non-interest-bearing loan?

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Quick Answer

According to Accounting Tools, a non-interest-bearing loan is a loan or debt on which the borrower is not required to pay interest. With this type of loan, the only amount due is the principal, or actual amount borrowed, as long as the borrower meets all other requirements of repayment. The source notes that this can also be referred to as a non-interest-bearing note.

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What is a non-interest-bearing loan?
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Full Answer

Investopedia notes that a non-interest-bearing loan may be called a non-interest-bearing current liability, depending on the issuer of the debt. Examples of a non-interest-bearing current liability include accounts payable, taxes due and current income taxes with repayment amounts that do not increase due to fees, interest or penalties. Typically, a non-interest-bearing loan of this type is due for full repayment within one year of the date the debt was incurred.

Accounting Tools notes that if the non-interest-bearing loan is a bond, the issuer has issued the bond at a discount and is expecting the full face value of the bond to be paid upon maturity of the bond. This assists the borrower in avoiding periodic interest payments. This type of non-interest-bearing loan is also referred to as a zero-coupon bond. If resold to a third party, a discount to the face amount is given so that the purchaser realizes a gain when the note is redeemed.

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