News that a Government supported scheme will be handing out interest free loans to people on low incomes has been met with some skepticism. We take a further look into why.
The roll-out is expected in September and hopes to assist 20,000 people.
What exactly are these loans?
After a successful trial in Manchester, the no-interest loan scheme (NILS), backed by the Treasury and run by credit unions and other lending organisations, is set to have a mass roll-out for the rest of the UK in September this year.
It hopes to combat the use of payday loans for vulnerable people and also aims to offer emergency funds to those who may otherwise be turned down due to their inability to make interest payments.
Customers are allowed to have only one loan with the programme, which they can have for between six and 18 months, although the average length of time is 12 months. Borrowers can access between £100 and £2,000, with the average amount borrowed £500.
MoneyMagpie’s founder Jasmine Birtles says that although “it sounds like a good idea, I can see it backfiring. Apart from anything else I don’t know that the scheme will last as many people won’t pay back so it won’t be self-sustaining.”
Where is the Money Coming From?
Andrew Sykes from Noah’s Ark Services in Yorkshire says, “It’s interesting. Fair4all Finance are behind it and get funding from the dormant bank accounts pot (£90,000,000 I think).
I’m surprised by the upper end, £2,000, I think it would work better (like the Iceland scheme) if it was smaller amounts (a few hundred) aimed at those who might end up with a loan shark.”
Sykes also reminds readers that “I’d definitely like to add a caveat on EVERY loan, you must get debt advice. Let someone who knows what they’re doing have a proper look at what’s actually going on.”
Jasmine Birtles adds: “I think this will be helpful for a lot of people, particularly single parents who often struggle to keep up with bills from week to week. I suspect there will be some who will see this as an opportunity to get free money and will have no intention of paying the money back. There will be others who do mean to pay it back but circumstances may prevent them, However, for a number of people who just need a bit of cash to tide them over until next Friday or until payday, this will be a marvellous help and will prevent them from dropping into the hands of nasty loan sharks.”
More news on how to access these loans will come in the following months.