Iceland offering “ethical” loans up to £75 to cover food costs: How does it work?

10 min Read Published: 14 Jan 2022

Iceland launches ethical loansIceland has announced it is offering personal loans worth up to £75 for customers who are struggling to pay their food bill through the newly-launched Iceland Food Club.

The short-term microloans of between £25 to £75 are designed to provide an “ethical” and “affordable” alternative to mainstream lenders and to help individuals and families overcome food poverty. However, the loans have high interest rates and missed repayments can leave a mark on your credit file, so it is important to fully understand the terms of an Iceland Food Club loan before committing to one.

In this article, we explain everything you need to know about the Iceland Food Club, if you are eligible, and how you can get a loan - if it is right for you.

What is the Iceland Food Club?

The Iceland Food Club, operated by not-for-profit lender Fair For You, is part of Iceland’s “Doing It Right” initiative to help tackle food poverty. The programme offers short-term loans of between £25 and £75 which are uploaded onto a dedicated Food Club card. Customers can use their card at Iceland or The Food Warehouse checkouts - in person or online - to pay for their groceries. Initially trialled in 2020 in Yorkshire and North Wales, it has so far processed more than £1 million in Food Club loans.

How does an Iceland Food Club loan work?

An Iceland Food Club loan is repaid at a rate of £10 per week (the final week may be less depending on the loan amount). Customers can choose which day of the week their repayments are made and can take out further credit - between £25 to £75 up to 6 times per year - for additional shopping trips at Iceland or The Food Warehouse stores.

There is a limit of £100 outstanding credit at any one time. Loans are repaid at a high interest rate of 45%, equivalent to 55.6% APR. Iceland states that a £75 loan repaid over an 8-week period would include interest of £2.89. Alternatively, a £25 loan over the same length of time would cost just 40p in interest.

You can pay back any outstanding loan amount early with zero fees, and because interest is charged daily, paying off your loan early will reduce the total amount of interest you have to pay.

Are you eligible for an Iceland Food Club loan?

Iceland states that the following criteria must be met in order to be eligible for an Iceland Food Club loan:

  • You must have a “stable” and “regular” source of income
  • You must have a bank account

Applicants that are currently unemployed or on benefits may still be eligible as long as they meet the above criteria.

How do you use an Iceland Food Club card?

Your Iceland Food Club card will be sent to your address within 5-7 business days of completing your online application. All you need to do is tap it at the checkout or provide the relevant information online at the point of payment. The purchased amount will be removed from the balance in the same way as a normal credit card. Bear in mind, however, that there is no way to withdraw the balance from your card and it will only be viable in store or online at Iceland or The Food Warehouse.

Does an Iceland Food Club loan affect your credit rating?

Yes, an Iceland Food Club loan can affect your credit rating. Applications for a loan involve a credit check which may appear on your credit file, but Fair For You maintains that the decision to lend is not “solely based” on your credit report. It does however reserve the right to conduct “relevant assessments” to determine if an Iceland Food Club loan is affordable for you, including viewing your bank statements and proof of income. If you cannot be contacted about missed repayments, or there is no intention to repay, after 30 days Fair for You will report to credit reference agencies that you are in arrears and this will leave a mark on your credit file.

What happens if you fail to repay an Iceland Food Club loan?

There is no penalty charge for missed repayments, but interest will continue to be charged until your Iceland Food Club loan has been repaid in full. If you have consistently missed repayments, you may not be eligible for further loans, and defaulting on your loan may result in Fair For You recovering funds from other benefit payments that you receive. This means that an Iceland Food Club loan may not be suitable for those already struggling with debt. If you are finding it difficult to cope with debt, read our advice on how to get help.

How to get an Iceland Food Club loan

In order to apply for an Iceland Food Club loan, you have to fill out the online application form. You must select which day of the week you would like to make your repayments and answer some basic questions including your employment status, if you are receiving any benefits, and your average monthly income. The form also asks for your National Insurance number and personal details in order to conduct the affordability assessment.

Alternative ways to get help towards your food bill

If an Iceland Food Club loan is not for you, there are other ways that you can access financial help towards the cost of your food bill.

Household Support Fund

The UK government is offering cash grants to families and individuals struggling to meet costs through the new Household Support Fund. Available up until 31 March 2022, the fund will be distributed by local councils directly to people in need, but the amount you may receive differs depending on your location and circumstances. For example, Runnymede Council in Surrey is offering up to £800 to qualifying residents, while Rutland County Council is only offering £100. To be eligible, households must be claiming at least one of the qualifying benefits such as Universal Credit or Pension Credit, though individual councils have different eligibility criteria so it is advised that you check your local council’s website for full details. Find out how to contact your local council here.

Free school meals

If you are already the recipient of some benefits and struggling to feed your children - particularly over the holiday periods - you may be eligible to receive free school meals. This can greatly reduce your shopping bill and help you to meet other expenses throughout the month. In addition, children in a government-funded school and in either reception, year 1 or year 2 are automatically entitled to free school meals regardless of their household income, so make sure to follow this up with your school if you are in need. Otherwise, eligibility for free school meals differs depending on your local council, so make sure to contact them directly.

Food banks

Food banks can help to supply you with food if you can’t otherwise afford what you need. Most food banks require a referral before you can use them, which you can get from a Citizens Advice bureau, your local council, or sometimes a GP. If you are eligible for a food bank, you will be given the location of the nearest one to you where you will be given a parcel of staple food items, such as bread and tinned vegetables. If the food bank you have been referred to is run by the Trussell Trust, you can find your local one using this map. If your local food bank is run by a church or other religious group, they will still help you even if you are not religious or from a different religion.