Interest-free loans set up by the British government

The so-called Interest Free Loan (NIL) scheme was introduced in September to help UK households cope with rising food bills and the cost of living.

The scheme was initially piloted by 5,000 participants in Manchester, with the aim of helping parents cover the cost of food bills during school holidays. The trial result showed that 71% of participants said they were less likely to fall behind on bills, council tax and rent as a result.

With initial participants able to access £25-100 interest-free, the scheme was set up by the Icelandic supermarket chain, in partnership with the UK government, Fair For You and a £1m injection from Fair4All Finance and JP Morgan.

Since its rollout, 20,000 borrowers will initially benefit, with loans available between £100 and £2,000, once referred by a housing association, credit union or specific lender.

A powerful initiative in the face of the rising cost of living

“The interest-free loan initiative is a powerful system,” says Justine Gray, founder of money site, Dollar Hand.

“With the consumer price index hitting 10.1% and Ofgem saying households will spend around £1,570 more this year on gas and electricity, a response was needed from the government. The reality is that your same income buys fewer goods and doesn’t go as far – you essentially become poorer overnight, even if you budget well.

“Hence the introduction of this scheme is imperative, especially in the early days of the cost of living crisis.”

A viable alternative to high cost loans

Many have hailed NILs as a solid alternative to high-cost loans such as payday loans, logbook loans, or pawnbrokers.

“In times of crisis, households will seek high-cost loans or sell valuables to cover their heating bill or put food on the table. With some high street lenders offering rates north of 1000% APR, a low interest loan program is definitely welcome.

“It also reduces the risk of loan sharking, helping people borrow money from a reliable source and with realistic payment terms.”

Flexible payment options

“The interest-bearing loan program comes with very flexible repayment options,” confirms Richard Allan of funding platform Capital Bean.

“Borrowers can pay weekly or monthly over six to 18 months, via wire transfer.” “You can also prepay if you want, and you can set a repayment date each month with the lender that’s best for you.”

A missing payment will affect your credit score

David Soffer, founder of price comparison, Proper Finance concludes: “You will have the option to take payment holidays if you wish and you can set up an arrangement to pay if you have fallen behind on repayments.

“However, as with any loan, failure to repay on time or make no repayments will negatively impact your credit score, making it more difficult to access traditional finance such as credit cards. and personal loans in the future.”

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