Following a successful trial in Manchester, the No Interest Loan Scheme (NILS) is to be rolled out across the UK to 20,000 people as the scheme enters the second phase of its pilot.
The NILS offers interest-free credit over 6-18 months of up to £2,000 for people who cannot afford the interest on a standard loan.
The scheme – which is backed by the Treasury but ran by other credit unions and lenders, such as Fair4AllFinance – is designed to “support the financial wellbeing of people in vulnerable circumstances”, aiming to “increase access to fair, affordable and appropriate financial products and services”.
It is expected that, should a full-scale rollout occur, over half a million people could benefit from emergency finance to help them in times of need, such as the costs of a funeral. One such example was noted by the BBC in the case of Lisa, who needed help to pay for her brother’s funeral and was given a £300 emergency loan. On how this improved her situation, she said:
“My finances were shocking, I was going to court every other week – mainly because of council tax and rent [debt].
I’m saving now, I’ve learnt how to budget, I’ve learnt how to pay my bills on time, so we’ve got a roof over our heads and food in our cupboards. Going from having nothing to having everything, is all I could ask for.”
David Crooke, Head of Sales at Tower Street Finance, accepted that the NILS is a “helpful development”, but was keen to illustrate how dedicated finance to cover testamentary expenses can be better suited to covering costs in situations such as Lisa’s:
“When someone passes it can be a very challenging time financially. Providing a £2,000 interest free loans is a helpful development, however this is still a form of personal loan for which the individual is personally liable for. On average testamentary expenses such as funeral costs, legal and administration fees and property maintenance and sale costs can run to £15k in the UK. Products such as our Estate Expense Funding can ensure that a completely risk-free facility is available to help with all of these costs. The fund is repaid from the estate when it distributes so the individual isn’t personally liable.”
Economic Secretary to the Treasury John Glen said the NILS was designed for consumers “in vulnerable circumstances who would benefit most from affordable credit to meet unexpected costs”. He continued:
“This is a fundamental, worthwhile, new initiative, to provide a gateway product for people who at the moment are beyond the lending capacity of some credit unions.
The challenge now will be to take that proof-of-concept pilot to a bigger pilot so that we can now validate it.”