Business & Investment

Interest-free loan pilot from Treasury for stubborn borrowers

Treasury promises to fund £ 3.8m interest-free loan pilots for hard-up borrowers “a step in the right direction,” says debt charities and lenders

  • Schemes can help those who can’t afford to pay interest on a loan
  • It is based on an Australian-style community lending scheme
  • The initiative was proposed by former Prime Minister Philip Hammond in 2018
  • According to a treatise published last year, it could make as much as 408,000 profits.

Former Finance Minister Philip Hammond first proposed an idea in 2018

Charities and local lenders are cautious about the Treasury’s plans to provide £ 3.8m to pilot an Australian-style interest-free lending system to hundreds of thousands of people who can’t afford high credit. Welcomed.

Funding for this scheme only worked with a proposal first announced by former Prime Minister Philip Hammond in the 2018 budget to give people below the poverty line access to credit.

The scheme “will help vulnerable consumers who benefit from affordable short-term credit to deal with unexpected costs instead of high-cost credit,” the Treasury said Wednesday.

The £ 3.8m announcement to fund pilots will be made 12 months after the publication of London Economics’ report on loan feasibility between April and August 2019.

Such loans are feasible, range from £ 100 to £ 2,000 and can be repaid over a period of three months to three years, he said.

An estimated 274,000 people can afford to repay £ 500 a year, and without interest, they wouldn’t be able to repay a loan at an average community finance rate of 7.2%, and 408,000 would be able to repay £ 1,000.

According to figures released by the Joseph Rowntree Foundation in 2017, it is estimated that 11 million people live on 75% of the income required for an acceptable standard of living.

Debt Charity Step Change said these people may need to repay interest-free loans for longer periods of time due to lack of disposable income to repay even lower interest loans. ..

Funds may be provided by governments, banks, or national lottery tickets, according to a London Economics report, but loans may be provided by a single centralized authority or regulated lender.

The scheme is based on Australia’s “Good Shepherd” scheme and offers 125,000 low-income earners up to $ 1,800 in loans to buy their essentials.

The UK pilot version was designed by Fair4All Finance in collaboration with Toynbee Hall, Fairby Design and the Treasury, and could be released “around mid-2021” according to an update released by Fair4All in January. there is.

UK unemployment is expected to peak at 6.5% in 2021, or 2.2 million

UK unemployment is expected to peak at 6.5% in 2021, or 2.2 million

It will see it steered before the UK unemployment peaked at a projected peak of 6.5 percent Termination of temporary dismissal scheme September and expiration date Universal Credit’s £ 520 rise for 6 months.

Budget Responsibility estimates that about 2.2 million people may be unemployed, but the latest statistics from the Joseph Rowntree Foundation show that 14.5 million people were already in poverty before the pandemic in the UK. ..

The budget included limited details about the pilot, but the £ 3.8m announcement to cover it was “in the right direction” from charities and lenders, even if they said they needed to release the details. It was welcomed as a “big step towards”.

Robert Kelly, Chief Executive Officer of the British Cooperative Association, said: You will be confident that you will participate in it and support it. “

He wondered how much of £ 3.8m would be spent to cover the costs of the company that provided the interest-free loan.

“I think it’s unrealistic to expect credit unions and other community finance companies to accept the entire risk without interest.

“Will the loan be accepted and the default balance pursued?”

He added: “Economically vulnerable individuals can benefit from this scheme, but for some of the most vulnerable or financially deprived individuals, some form of welfare support program or grant is much more. Influential.

“For some people, just paying back the credit line is a big challenge.”

And Step Change’s Sue Anderson said: What is needed is an urgent scale-up of the concept to quickly learn from pilots and support those who have accumulated debt as a result of the coronavirus pandemic.

“Strengthening short-term protection, such as temporary severance, will save time for those who are experiencing temporary financial difficulties, but the 1.2 million people affected by Covid are serious. It is in debt and another 3 million people are at risk.

“Interest-free lending schemes can help them recover and play a major role in accelerating economic recovery.”


Interest-free loan pilot from Treasury for stubborn borrowers Interest-free loan pilot from Treasury for stubborn borrowers

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