Interest-free loans rolled out by UK government
The UK government has introduced an Interest-Free Loan Scheme to curb rising living costs. We speak to some industry experts to find out everything you need to know
The so-called No Interest Loan scheme (NILs) was introduced in September to help UK households with rising food bills and living costs.
The scheme was trialled initially by 5,000 participants in Manchester, with the intention to help parents cover the cost of food bills during school holidays. The outcome of the trial showed 71% of participants said they were less likely to fall behind on bills, council tax and rent, as a result.
With initial participants able to access £25 to £100 interest-free, the scheme has been constructed by supermarket chain Iceland, in partnership with the UK government, Fair For You and a £1m injection from Fair4All Finance and JP Morgan.
Since its rollout, 20,000 borrowers will benefit from it initially, with loans available between £100 and £2,000, once referred by a housing association, credit union or specific lender.
A powerful initiative in the wake of rising living costs
“The interest-free loan initiative is a powerful scheme,” says Justine Gray, founder of money site, Dollar Hand.
“With the consumer price index rising to 10.1% and Ofgem reporting households will be spending around £1,570 more this year for gas and electricity, a response was needed by the government. The reality is that your same income is buying less goods and not going as far – you are essentially becoming poorer overnight, even if you are budgeting well.
“Hence the introduction of this scheme is imperative, especially in the early days of the cost-of-living crisis.”
A viable alternative to high-cost loans
Many have hailed NILs as a strong alternative to high-cost loans such as payday lending, logbook loans or pawnbrokers.
“In desperate times, households will look for high-cost loans or selling off valuable items to cover their heating bill or put food on the table. With some high street lenders offering rates north of 1,000% APR, a low interest loan scheme is truly welcomed.
“It also reduces the risk of loan sharking, helping people to borrow money from a trusted source and with realistic payment terms.”
Flexible payment options
“The interest loan scheme comes with very flexible repayment options,” confirms Richard Allan of funding platform, Capital Bean.
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“Borrowers can pay either weekly or monthly over six to 18 months, via a bank transfer.” “You can also repay early if you wish to, and you can state the repayment date each month from the lender that suits you best.”
Missing payment will affect your credit score
David Soffer, founder of price comparison, Proper Finance concludes: “You will have the option to take payment holidays if you want and you can set up an arrangement to pay if you have fallen behind on repayments.
“However, like any loan, if you fail to repay on time or make any repayments, it will negatively impact your credit score, making it more difficult to get access to mainstream finance such as credit cards and personal loans in the future.”