How the government-backed interest-free loans work

A government-backed scheme that offers interest-free loans to the financially vulnerable is to expand to reach up to 20,000 people across the UK.

The no-interest loan scheme (Nils), which is backed by the Treasury, underwent a successful trial in Manchester and other areas, explained Metro, and from September it will be rolled out in other parts of the UK.

John Glen, economic secretary to the Treasury, told the Association of British Credit Unions last month that Nils “is a fundamental, worthwhile new initiative” for people currently “beyond the lending capacity of some credit unions”.

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How does it work?

With this scheme, you only pay back what you’ve borrowed – unlike other loans where interest charges mean you pay back more, explained The Sun.

From September, the pilot scheme will be expanded to other regions of the UK for a two-year period. A decision will then be made on whether it should be expanded further.

Successful applicants are only allowed to have one loan with the programme, which they can have for between six and 18 months, said The Guardian, with the average length of time being 12 months. Borrowers can access between £100 and £2,000. The average amount borrowed is £500.

How is it funded?

Chancellor Rishi Sunak announced the pilot as an alternative to high-cost credit in the March 2021 Budget, promising that the government would provide £3.8m of the funding towards it. Although it is backed by the Treasury, it is run by credit unions and lenders.

The devolved administrations of Wales, Scotland and Northern Ireland have each provided £1m of lending capital, which has been matched in England by Fair4All Finance, a not-for-profit company that runs the programme. JPMorgan Chase also committed £1.2m to the scheme earlier this year.

Fair4All Finance was founded by the government three years ago to “increase access to fair financial products and services to help people in vulnerable circumstances meet their day to day financial needs, absorb shocks and smooth incomes”.

Its website notes that more than 3 million people access high-cost credit in the UK and more than 11.5 million people have less than £100 in savings. It said the loans had helped people who were “managing life events like ill health, relationship breakdowns and bereavements” by “getting them back on their feet through being able to furnish their house or finance a return to work”.