Retailers including Iceland and John Lewis have recently introduced interest-free loans to help consumers tackle the cost of living crisis, but is it a help or hindrance to saving?
Iceland's new loan scheme, dubbed 'Iceland's Food Club' and launched in partnership with not-for-profit organisation Fair For You, sees customers apply for a series of loans worth between £25 to £100 on a pre-paid top-up card with the amount lent depending on what you requested and your ability to pay it back.
Customers can apply for one loan at a time, and a maximum of six loans over the course of a year although to borrow more your current loan balance will need to be £75 or less, and you can't have defaulted on previous loan repayments which are made weekly and are set at £10 a week.
Although on paper such schemes are great, some have questioned whether they promote spending above what you can really afford in these tough times. tfp's Charles Banks discusses the topic.
"The cost of living crisis is getting to such level that Iceland have launched zero interest micro-loans of between £25 - £100 to help the rapidly growing number of UK households that are struggling to pay for groceries and essential items. The 'micro-loans' are made available on preloaded cards, with repayments set at £10 a week.
"Inflation on groceries has spiked to 11.6 per cent of the four weeks to August 7, compared to 9.9 per cent in the month before. According to Kantar, this is equal to a £533 annual increase on a grocery bill for a UK household, and for the lowest income families this represents a huge increase that sits on top massive energy cost increases that will only be exacerbated into the winter. The initiative, the result of a link-up between Iceland and a charity-owned lender Fair for You, is particularly for the school holidays so that parents can keep their cupboards stocked, which we know from our work with our charity partner Chefs in Schools is an extremely tough time for many families.
"It certainly looks like Iceland have done their due-diligence but is it right? While this can be a great tool for spreading out costs over time, it can be an easy way to spend beyond your means, which can lead to a cycle of debt for those who need to use credit cards, overdrafts and loans to make repayments toward their BNPL (buy now, pay later) debts. It's essential that these debts if not repaid are not sold off to third parties and debt collectors, but instead long term repayment plans are put in place, otherwise it fuels a cycle BNPL. Certainly, Iceland are saying that this is how it will operate. Whether you agree or not with the gap between pay growth and inflation at the highest since records began more than 20 years ago, action is needed and Iceland are seeking to help and support their customers."