For those experiencing financial hardship, credit may often seem like the only option when times are tough.

Credit cards and payday loans are fraught with danger, and those in a bad way financially often have a poor credit score which can prevent them from getting a personal loan.

However, there are alternatives, such as no-interest loans. No-interest loans can help those struggling to pay for expenses without sending them into a debt spiral. So how do they work?

What is a no interest loan

The No Interest Loan Scheme (NILS) is an initiative of Good Shepherd Microfinance, supported by the Australian Government and NAB. The scheme allows people to access up to $1,500 for essential goods and services to be repaid over 12 to 18 months with no interest and zero fees attached.

There is no credit check required when applying and the loans are available via 160 different community organisations in 628 locations across the country. Launched in 2003, the scheme is aimed at keeping vulnerable households away from predatory lending products and getting them ahead of their debt, which helps contribute to the country’s economic growth as a whole.

Since its inception, almost 185,000 no-interest loans have been approved, with a value of $329 million. The average loan amount is $904, 68% of the loan recipients are women, 22% of clients identify as Aboriginal or Torres Strait Islander people, and 95% of the loans are fully repaid.

The NILS works on a good faith system through a process called ‘circular community credit’. When one borrower makes a repayment, the funds become available to someone else who needs them.

Who is eligible for a no interest loan?

To be eligible for a no interest loan you must:

  • Have a Health Care Card or Pension Card, or earn less than $45,000 a year after tax as a single, or $60,000 as a couple or people with dependents,

  • Have lived at your current or previous address for at least three months,

  • Show evidence you have the capacity to repay the loan.

What can and can’t you buy with a no interest loan?

NILS loans can be used for:

  • Household items, e.g. washing machines, fridges, furniture.

  • Some medical and dental services.

  • Educational resources, e.g. textbooks, laptops.

  • Car repairs, maintenance, and registration.

The idea is NILS loans aren’t used as an emergency fund to cover emergency or frivolous spending.

NILS loans can’t be used for:

  • Rent

  • Bills

  • Food and drink

  • Debt repayments

  • Cash

How do you apply for a no interest loan?

You can apply for a NILS loan through these simple steps:

  1. Check your eligibility: You can do this by heading to the NILS website and ticking off eligibility requirements like having a Health Care Card and showing evidence you can repay the loan.

  2. Get in touch: You can find your nearest NILS provider through the NILS website or call 13 64 57 to make an appointment with your nearest provider.

  3. Assessment: Your appointment with your provider will go through your application and assess the length of your loan and what your repayments will be. This typically takes between 45 and 90 minutes.

  4. Approval: If you bring all the necessary paperwork to your appointment you may be approved on the same day. If not, approval typically takes no more than two days. You will then receive a cheque with your loan amount, made out to the supplier you need to pay.

What other options are there?

If a NILS loan isn’t for you, there are other options:

A StepUp loan

A StepUp is a low-interest loan with no fees, where you can borrow $800 to $3,000. It has a fixed interest rate of 5.99% and must be repaid in three years in weekly, fortnightly or monthly repayments. It can be used for everything a NILS loan can, as well as a secondhand car.

To be eligible you must:

  • Have a Health Care Card or Pensioner Concession Card, or be receiving Family Tax Benefit A,

  • Have lived at your current address for more than three months.

To apply, you can visit the StepUp loan website or call your local StepUp provider to arrange an appointment. They’ll work through your application, ensure you have the capacity to make repayments and work out what they may be. Once approved, you’ll have to visit a NAB branch (who fund the scheme) to sign off on the loan contract. You’ll then receive the cheque made to the supplier you need to pay.

A personal loan

If you need to borrow a larger amount you may look at getting a personal loan. A personal loan is typically for amounts greater than $5,000 and less than $100,000, usually repaid over five to seven years. Keep in mind you typically need a good credit score to get a personal loan and you will face more stringent criteria from a lender, including regarding what the money is for. Personal loans are also likely to have much higher interest rates than a StepUp loan and you will have to pay a minimum repayment each month, dependent on the lender.

Savings.com.au’s two cents

NILS loans can be a lifesaver for those struggling financially and are likely to be a far safer alternative to payday loans.

Although there is no interest rate, you should ensure you can afford to make repayments over the period of the loan so as to not get yourself into further financial trouble.

Photo by Scott Rodgerson on Unsplash