What Is Non-Interest-Bearing Debt?

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It is far better to have non-interest-bearing debt than having your debt grow.
It is far better to have non-interest-bearing debt than having your debt grow. (Image: Pennies on the Dollar - one dollar bill with pennies. image by Andy Dean from Fotolia.com)

Non-interest-bearing debt is also referred to as “non-interest-bearing current liability” or NIBCL. It is, simply, debt that does not require any interest payments. Most debt people are familiar with is interest-bearing debt such as mortgages, bank loans and credit card balances. With these debts, the bank or financial institution that issues the credit charges you for providing the service of use of the money. This charge is called “interest.”

Typical Interest-Bearing Debt

Let’s take a mortgage as an example of a common interest-bearing debt. You have a $500,000 mortgage to be paid off in 30 years with an interest rate of 4.5 percent. For this example, any extra taxes, fees or extra costs are not taken into account.

Bottom Line

The bottom line is that after 30 years at 4.5 percent, you would actually pay $912,034.80 to the bank, a difference of $412,034.80 from the same loan with no interest.

Interest vs. Non-Interest

You would pay $2,533.43 per month. A non-interest-bearing debt of $500,000 to be paid off in 30 years would mean the debtor would be paying a bit under $1,400 per month.

An Interest-Free Mortgage?

Of course, there is no such thing as a mortgage without interest, except if a person is giving a private no-interest loan to another person.

Examples of NIBCL

Examples of common NIBCL that people may encounter are current income taxes payable by the end of the year, unpaid taxes that are not increasing due to any type of penalty or interest and accounts payable that have no fees.

Real World Example

To further clarify, if your company bought $50 of computer paper from a supplier, the supplier would send you a bill for $50. If your company couldn’t pay it, it may set the bill aside. The supplier may send the bill again month after month, but the total amount would still remain $50. This $50 would be considered an NIBCL. If the supplier began to charge a fee for each month your bill was unpaid, this $50 would become an interest- or fee-bearing debt.

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