No Interest Loans

Reporter: Jackie Quist

Need a new car, a new fridge, a new lounge? Can't afford it? Now you can -- no tricks, no traps.

Mikala Hehir is head of Community Finance & Development at the NAB and says the No Interest Loan Scheme provides funding to those who need it most. "NAB provides money free of charge to a range of charities across the country and then the charities use that money to give out by way of loan to their clients. As the clients pay it back, that puts more money back into the charity's account and then another person can take out a loan", Mikala said.

Its a scheme first developed by the Good Shepherd Youth and Family Service, now adopted by 400 different organisations around the country, including the Islamic Council of Victoria.

"It's a very honourable thing to try and assist people who are in need", The Islamic Council's Sharene Hassan.

Sharene points out their microloans loans are also available to non-Muslims for the purchase of household goods or educational necessities. "People can borrow up to $1000 and this is a loan that is interest free, they are expected to try and make repayments every fortnight and they're encouraged to finish repaying the loan in 18 months. But absolutely no interest is charged at all", Sharene said.

So what's the criteria? Borrowers must be on a low income, have a health care card or receiving Centrelink Benefits. All applicants are interviewed and assisted with a budget and loans must be repaid within 18 months and are not granted for cash advances, living expenses or department repayment and consolidation.

"It's not a luxury it's a necessity", said disabled pensioner, Marie-Noelle Ash.

For Marie-Noelle, a crippling back problem means she can't use public transport. After being knocked back by the banks for car loans she turned to the Brotherhood of St Lawrence. "Within a week they gave me actually the first car loan of $3,000", she said.

She has now upgraded with a second loan to a Nissan Maxima and does pay interest, but with payments fixed at $50 a fortnight for five years. "When I compare the loans to the banks or the other fin institutions the Brotherhood of St Laurance is so much cheaper", Marie-Noelle said.

"It allows people to borrow up to $3000 for household goods $5000 for a car", said Sally Finlay from The Brotherhood of St Laurence.

She says its ANZ Progress Loan carries interest but you can borrow more. "It's a myth that poor people can't manage their finances. If you're given the right tools and given access to products that the rest of us can access, they can pay back loans", Sally said.

"The no interetst low interest loans are a great idea", said CEO of the Consumer Action Law Centre, Carolyn Bond.

Caroline says they're not to be confused with the notorious Payday Loans. "Payday Loans tend to be for a short term. They're often given because people just haven't got enough money to pay bills for other expenses and a big payment usually comes out on payday. People often get into further trouble as a result of these, people are often paying 4 5 600% for these payday loans", Caroline said.

"People who are desperate do desperate and silly things and that's what I did", said Shane Gray.

Shane's $300 payday loan to cover his rent quickly spiralled out of control. 47.5% interest was bad enough, but add on commissions and repeat dishonour fees and he now faces an unmanageable debt. "My rough guess would be about $1000 plus. I would say all their administration costs which they also include, yeah it would be over $1000. I am certain of it", Shane said."We support the Government's proposals to put a cost cap on these loans. They're very expensive at the moment, the cap will reduce the amount that people have to pay for these loans and hopefully have less people getting into this debt trap", Carolyn said.

But the lesser known microfinance loans are growing in popularity -- the NAB signing off on 20,000 no interest loans this year. "It's a part of our corporate responsibility and it's a part of some of the biggest money we give away each year", Mikala said.

For further information:

Nationally:

www.goodshepvic.org.au/microfinance

Victoria:

Good Shepherd Youth & Family Service - No Interest Loans (National List) - www.goodshepvic.org.au/microfinance

Brotherhood of St Laurence - Progress Loans - www.bsl.org.au/progressloans

Uniting Church - No Interest Loan Scheme - www.connections.org.au/NILS/

National Australia Bank - No Interest Loans - www.nab.com.au/wps/wcm/connect/nab/nab/home/about_us/7/4/3/3