No Interest Loan Scheme pilot: Interim report shows positive impacts for the pilot so far

A new report on Fair4All Finance’s ongoing No Interest Loan Scheme (NILS) pilot provides the evidence that the scheme is helping people in financially vulnerable circumstances, and has the potential to help many more.

PwC’s latest analysis of NILS covers a total of nearly 4,000 loans, with a total value of £2.1m – at an average loan value of £591.

The report shows that 80% of loans appear to be reaching those in financially vulnerable circumstances, and just over half of the loans (51%) are provided to individuals in the two most financially vulnerable groups, as identified by Fair4All Finance’s segmentation model.  

Lauren Peel, Director of Marketing, Consumer Insights and Propositions at Fair4All Finance said:

‘It’s interesting to see that half of loans are going to people in our two most vulnerable segments. Another third are split across our other segments, which tells us two things. First, that there is a depth of financial vulnerability, and people who cannot access affordable lending, across all the segments. Second, that a scheme like this has the potential to help a wide range of people.’ Lauren Peel, Director of Marketing, Consumer Insights and Propositions

A final evaluation report of the No Interest Loans Scheme will be published once the pilot has completed in 2025. Thorough and regular evaluation of the scheme is a key feature of its design, to ensure lessons are learned and, where applicable, that relevant modifications can be made during the pilot.

How we got here

One of Fair4All Finance’s strategic priorities is to develop the market to consistently provide products that better respond to people’s needs and support their financial wellbeing.

In 2021, Fair4All Finance was appointed by HM Treasury to run a pilot No Interest Loans Scheme, the first time such a scheme had been tried at scale in this country.

Following a successful proof of concept in 2022, the first lenders started delivering no interest loans in November 2022.

What are we trying to do?

• Understand the demand for no interest loans from people who cannot currently access affordable credit, and the ability of borrowers to repay
• Identify and quantify the impact on borrowers and wider society
• Assess the long-term sustainability of delivering a permanent no interest loan scheme in the UK

In October 2023, Fair4All Finance deployed further funding to expand the scheme. At this time, we received initial indications in PwC’s first interim report that NILS processes were operating smoothly and that loans disbursed so far were helping people to manage life events and get back on their feet.

The report: more detail

In addition to the headline figures mentioned above, PwC’s interim report finds that:

• Loan health currently seems strong, and there appear to be few issues in repaying loans. This is especially positive in the context of rising default rates across the industry since 2022
• Most borrowers are satisfied with the NILS process and with their lender
• Most loans are taken out either to pay for buying, repairing or replacing household items (40%), followed by paying bills (19%), and a financial emergency (8%). A range of other reasons were also given by borrowers, including car repairs, funeral costs and healthcare costs.
• Most loans (88%) are taken out with a 12-18 month repayment term

The report also makes recommendations to Fair4All Finance to make sure learnings are maximised over the remainder of the pilot. These are to:

• Consider how to make sure that loans are more evenly spread across the partner lenders, rather than having certain lenders operating at a higher or lower volume
• Consider how to further diversify the NILS customer base
• Consider whether loan principals can be increased to suit borrower needs
• Continue to check that lenders are following full product and underwriting rules
• Examine whether there are other potential changes to the scheme which could ensure that borrowers are supported holistically, for example through referrals or handovers to other organisations

Fair4All Finance is in the process of working with the NILS lending partners to implement these recommendations as the pilot continues.