Interest-free loans rise as pandemic and cost of living take their toll

An interest-free loan saved the life of single mother Rosetta Ianchello from western Sydney when her newly purchased car ‘died’ after just a few days.

“Everything went wrong for me,” Ms Ianchello told the ABC.

The last thing Ms Ianchello needed was to spend more money on her new car when the cost of essentials, from petrol to the weekly shop, was already skyrocketing.

She changed her shopping schedule to make the most of sale items.

“I don’t shop on weekends. For example, I go there on Tuesday and Wednesday evenings after 7 p.m. I find that the products are 60% cheaper for me or someone like me,” he said. she declared.

She approached bank after bank for a loan without success.

“The only solution I could think of was to go to Cash Converters because they lend money at high interest rates,” she said.

It was by chance that someone mentioned the interest-free loans offered by the Good Shepherd charity, funded by the National Australia Bank (NAB).

“I didn’t know anything about [no interest loans]I was too embarrassed to ask people if I could borrow money… [it] came out of nowhere and helped me out.”

Ms Guthrie said access to interest-free loans could be life changing.(Provided)

National data shows Ms Ianchello is one of many Australians turning to the Interest Free Loan (NIL) scheme as the cost of living crisis forces people to seek help from local community providers.

Earlier this year Australia recorded its highest inflation in more than a decade and last year consumer prices jumped 6.1%, the highest since June 2001.

Research from the Institute for Health Transformation at Deakin University in July revealed how much essential grocery items had increased.

Data shows that over the past year, the cost of lettuce has increased by 150%, broccoli has jumped $5, and tomatoes have increased by 25%.

Interest-free loans are almost unique to Australia, according to Fiona Guthrie, CEO of Financial Counseling Australia.

Loans are interest-free and repaid in installments.

Ms Guthrie describes the program as a wonderful Australian invention.

“There is no other loan program like NIL anywhere in the world,” she said.

“Financial advisors work with people who often don’t have enough money, and being able to access an interest-free loan can be life changing.”

Good Shepherd created the interest-free loan program in the early 1980s, but it wasn’t until 2003 that it partnered with NAB to help fund the loans.

A man is sitting at a desk
NAB spokesman Mike Chambers said a new interest-free car loan program allows customers to borrow up to $5,000.(Provided)

NAB spokesman Michael Chambers said the loans have adapted over the years and expanded to include education and medical expenses, car registrations and repairs as well as rental deposits.

Standard interest-free loans went from $1,500 to $2,000 on July 14.

“We think it’s really important that Australians have access to credit, especially low-income or no-income people who may not have access to other types of credit,” Chambers said. at the ABC.

“And interest-free loans are actually a really sustainable way for customers to access cash to buy essential household goods, when they might not otherwise be able to get more traditional credit products.”

No other bank in Australia offers interest-free loans apart from NAB, which Ms Guthrie said is set to change.

“It would be a very good thing to see more banks offering these types of loans,” she said.

“Because if you think about it, banks and the supply of credit is so fundamental to giving people access to products that they may not be able to get.

“We don’t want people getting harmful products like payday loans.”

Referral services and providers have noticed an increase in the number of people wanting to access NIL loans.

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Ms Vergara said the pandemic had created a new group of working poor.(ABC News: Ahmed Youssef)

Tairyn Vergara, CEO of Western Sydney-based Parks Community Network, thinks people wouldn’t have thought about her organization before the pandemic and the rising cost of living.

“So it’s really heartbreaking to see that people who were financially well before the pandemic aren’t anymore,” Ms Vergara told the ABC.

In the past fiscal year, its community center provided over 300 loans, up more than 10% from the previous fiscal year.

“[It] created this new group of working poor in our community, who now need access to our organization and our services,” said Ms. Vergara.

“Basically it’s a choice to pay bills or eat. That’s how people get desperate because they just don’t have enough income, they’re on social benefits or ‘they work.”

Between January and July of this year, NAB saw a record $27 million in loans, up from $22.5 million during the same period in 2021.

“We think it’s mostly down to a few things, so customers are borrowing a bit more because of cost-of-living pressures,” Chambers said.

“But there was also an interest-free loan program for the launch of the pilot vehicle program, which allows customers to borrow up to $5,000 as well.”

The new program, NILS4CARS, started in September last year.

It’s a welcome addition for Ms Vergara, who said car-related loans currently make up 40% of her organization’s output.

Ms Ianchello describes Good Shepherd staff as her guardian angels. She was afraid of falling further into her finances before receiving her loan, or of having to beg for help.

She finally has the power to face her debt.

“Every two weeks [the money] get out of my interest-free account and breathe, and I’m fine now,” she said.

“He came out of nowhere and paid all my debts.”

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