The No Interest Loan Scheme (NILS) is to be rolled out across the UK from September. The aim of the scheme is to offer emergency loans to people who are likely to be turned down, because they can’t afford the interest payments.
It will be run by credit unions and other lenders. After a successful trial in Manchester, the scheme is being expanded in a larger pilot phase to a few locations in the UK, which will last for up to two years. Depending on its success, a decision will be made on whether to roll it out further.
HM Treasury has committed £3.8m to the scheme while JPMorgan Chase has given £1.2m, and up to £1m of lending capital has been given by each devolved administration. Here’s how it works.
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Who is eligible?
The scheme is only available for people who have been turned down for normal borrowing. The scheme is designed to help people buy essential items, get access to education and get access to employment.
So far the loans have helped pay for driving lessons, upfront nursery fees to help people get back into work, funds for housing deposits and essential furniture. However, the scheme does not provide help for purchasing mobile phones, carpets, televisions, flooring, gifts or presents of any kind.
A separate charity covering Herefordshire, Worcestershire and Shropshire - also called No Interest Loan Scheme - offers a similar loan to the Treasury-backed scheme. Despite having the same name, the two are not related, and only people in those areas can apply to the charity.
How does it work?
Customers are eligible for one no interest loan and they can borrow between £100 and £2,000, with the average amount borrowed £500. They can borrow the money for six to 18 months, though the average length of time is a year.
Another benefit of the scheme is that it introduces people to the credit union and other lenders providing the loans. Credit unions are financial cooperatives owned by their members and they can offer further advice around budgeting and debt management.
They also offer similar services to banks, including securing deposits, ways to save and loans. Any profits also stay within the union for the benefit of members, rather than going to shareholders.
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