Interest free loan scheme: how No Interest Loan pilot works


The pilot initiative will expand beyond its existing areas in Herefordshire, Shropshire and Worcestershire to other parts of the UK

An expanded government-backed initiative that gives interest-free loans to the financially vulnerable will help up to 20,000 more people.

The Treasury-backed No Interest Loan Scheme (Nils), which is administered by credit unions and other lending institutions, was successfully trialled in Manchester and will be rolled out to more locations across the UK in September.

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Its objective is to provide emergency loans to people who would otherwise be turned down due to their inability to pay the interest.

It is hoped the programme will provide an inexpensive alternative to the UK’s three million high-cost credit users, preventing people from going into debt or, in extreme situations, turning to loan sharks.

How does Nils work?

From September, the pilot scheme will be expanded from its current locations in Herefordshire, Shropshire and Worcestershire to other regions of the UK for a two-year period, with a decision on whether it should be expanded further made after that.

Customers are only allowed to take out one loan through the programme, which can last anywhere from six to 18 months, though the average length is a year.

Borrowers can access between £100 to £2,000, with the average loan amount being £500.

“We fund items from household essentials and school uniforms through to laptop computers to access education and training, and tools and equipment to help people back into employment,” Nils says on its website.

In May, John Glen, the Treasury’s Economic Secretary, expressed optimism that a full-scale programme may be implemented in the future.

He told the Association of British Credit Unions that Nils “is a fundamental, worthwhile, new initiative, to provide a gateway product for people who at the moment are beyond the lending capacity of some credit unions”.

“The challenge now will be to take that proof-of-concept pilot to a bigger pilot so that we can now validate it.”

How is it funded?

The pilot is being funded with £3.8 million from the Treasury, £1.2 million from JPMorgan Chase, and up to £1 million in lending capital from each of the devolved administrations, with Fair4All Finance matching in England.

The Treasury and the Department for Culture, Media, and Sport established Fair4All Finance three years ago to “support the financial wellbeing of people in vulnerable circumstances”.

Joanna Elson, chief executive of the Money Advice Trust, said: “Too many people fall into a vicious cycle of debt that starts by the need to borrow a small amount for something essential like a fridge or a cooker – with high interest and charges quickly turning small debts into big problems.

“It’s vital that we improve access to affordable credit for those who need it.”

Why is it needed?

(Photo: Matt Cardy/Getty Images)

In January 2022, research from a debt charity showed the number of people struggling to keep up with payments and credit commitments had increased by about one-third since the start of the Covid-19 pandemic.

According to a poll for StepChange, nearly one-third of British adults – 30% or 15 million people – said they were struggling to meet their financial obligations, up from 15% or 7.5 million people in March 2020.

Its survey found that almost 8.6 million people in financial hardship borrowed £26 billion in 2021 to cover basic needs, with 3.5 million of them using credit to pay essential bills.

The cost of living crisis, according to StepChange, is anticipated to increase the number of individuals using credit to cover basic home requirements in the coming months, and the organisation warns that “immediate action” is needed to help households afford necessary costs without using credit.

How can I use the scheme?

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