Interest-free loans introduced by the UK government

The so-called No Interest Loan Scheme (NILs) was introduced in September to help UK households with soaring food bills and the cost of living.

The scheme was first piloted by 5,000 participants in Manchester with the intention of helping parents cover grocery bills during the school holidays. The results of the study showed that 71% of participants said they were less likely to default on bills, council taxes and rent as a result.

With initial participants accessing between £25 and £100 interest-free, the scheme was developed by supermarket chain Iceland in partnership with the UK Government, Fair For You and a £1m funding injection from Fair4All Finance and JP Morgan.

Since its launch, it will initially benefit 20,000 borrowers, with loans ranging from £100 to £2,000 available once brokered by a housing association, credit union or specific lender.

A strong initiative given the rising cost of living

“The interest-free loan initiative is a powerful system,” said Justine Gray, founder of dollar hand.

“With the CPI rising to 10.1% and Ofgem reporting households to spend around £1,570 more on gas and electricity this year, the Government had to react. The reality is that with the same income, you buy fewer goods and don’t go as far – you essentially get poorer overnight, even if you budget well.

“Therefore, the implementation of this system is imperative, especially in the early days of the livelihood crisis.”

A viable alternative to expensive loans

Many have hailed NILs as a powerful alternative to expensive borrowing such as payday loans, logbook loans or pawnbrokers.

“In desperate times, households look for expensive loans or sell valuable items to cover their heating bills or put food on the table. With some high street lenders offering rates in excess of 1,000% APR, a soft loan program is really welcome.

“It also reduces loan shark risk and helps people borrow money from a trusted source and with realistic payment terms.”

Flexible payment options

“The interest loan program offers very flexible repayment options,” confirms Richard Allan of the financing platform Capital Bean.

“Borrowers can either pay weekly or monthly over six to 18 months via bank transfer.” “You can also repay early if you want, and you can specify the repayment date each month from the lender that suits you best.”

Missing payments affect your credit score

David Soffer, Founder of Proper Finance, concludes: “You have the option to default if you want and you can make a payment arrangement if you default on repayments.

“However, as with any loan, failure to repay on time or make repayments negatively impacts your credit score, making it more difficult to access popular finance such as credit cards and personal loans in the future.”

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