A government-backed pilot that provides interest-free loans for people who have been refused credit is being extended in September and will be available for up to 20,000 people. The No Interest Loan Scheme (NILS), offers borrowers between £100 to £2,000 to fund things like school uniforms, access to technology, or tools and equipment to get back into employment.
The scheme, which operates through referrals from housing associations, credit unions or participating lenders, is backed by the Treasury and devolved governments, JP Morgan Chase and non-profit organisation Fair4All Finance. To date, it has been trialled in Manchester and is now being rolled out nationwide from September. Its aim, after an initial 2 year period, is to open it up to a further 500,000 borrowers per year.
How does the No Interest Loan Scheme work?
From September, people who have been referred to the scheme will be able to apply for a loan between £100 to £2,000, which will be repayable over 6 to 18 months. The exact amount you can borrow and the repayment period will be determined by your specific circumstances and your ability to repay the debt.
When you have been approved for the loan, you should receive the money as a lump sum into your bank account within 2 days. Individuals are limited to taking out one loan through the scheme in their lifetime. You then have the option to repay in weekly or monthly instalments.
What happens if you can't make the repayments on the loan?
There are currently very few details available on what happens if borrowers don't keep up with the repayments on their loan. There is the option to take a payment holiday, but this has to be agreed with the lender.
If, however, you miss payments and haven't repaid the whole amount by the end of the maximum 18-month period, it is currently down to the individual lender to decide on what action is then taken. In the first instance this is likely to be a repayment plan. It is as yet unclear whether interest will be added to the loan if it extends beyond the maximum 18 months term.
Although Fair4All Finance is in discussions with the credit reference agencies, there isn't a guarantee yet that these loans won't be included on applicants' credit reports and, as such, affect their credit scores. It states it expects the loans will only feature if it hasn't been repaid within the 18-month maximum loan term.
What to do if you are struggling with debt
If you feel as if your debts are spiralling out of control, there are a number of charities that are set up to help you, including Citizens Advice and National Debtline. For other sources of help, read our article "Where to get free debt advice".