As more Australians slip below the poverty line and struggle to make ends meet, our reliance on credit cards and loan sharks has increased. But a growing number of lenders are helping to put an end to that by lending money with no interest attached.
Developed by Good Shepherd Microfinance 34 years ago, the No Interest Loan Scheme (NILS) offers small, no interest loans for people on low incomes for the purchase of essential items.
To date, 257 institutions have adopted the scheme, helping more than 170,000 people previously excluded from mainstream banking access to loans and savings. Interestingly, according to Good Shepherd Microfinance, the repayment rates are consistently above 95%.
"It really is for essential items; you need to be on a pension, you need to be a welfare recipient and you need to have a very special purpose," finance guru Paul Clitheroe told A Current Affair (ACA) in 2012.
If you can prove that, then Clitheroe says these loans are the most responsible option.
"It's an interest-free loan, it keeps you out of the hands of pay-day lenders, it stops you using 18 or 21 percent [interest rate] credit card advances; that's got to be good."
The loans are safe and affordable – in the region of $300 to $1,200 – and are completely free of interest and fees. The program also helps recipients to improve their savings and budgeting skills.
The family who receives the loan has between 12 and 18 months to pay it back and once the money has been repaid it's then given to another family so the cycle can continue.
Single mum of two, Gail Tucker, used NILS to borrow $1,000 from Anglicare to purchase a washing machine.
"I took a $1,000 loan out and I paid $10 a week back on it and that got paid off within no time," she told ACA.
"They were great loans because they were small loans with no interest; it was a direct debit straight from my account so it was quite easy and affordable."
Anglicare has a pot of money which it allocates to clients in need, according to Theresa Clarke, program manager for NILs at Anglicare Sydney.
"We normally have around 280 clients who are approved each year", she told ACA that most of their clientele are struggling single mothers.
"They are people living on a very limited amount of income, coping day-to-day, but when an emergency situation comes up they don't have that discretionary income to cope with those repayments or to find another option."
NAB is one bank supporting NILS in Australia. According to their website, they’ve provided $23 million in loan capital to help the scheme expand across Australia.
NILS programs are run by local community organisations at over 600 locations across Australia. To qualify for a no interest loan you must have a health card, a pension card or be on a low income. You also need to have lived in your current home for over three months.