Keeping The Lines Of Credit Open
The Age
Monday February 25, 2002
WHEN credit cards were first widely introduced during the early '80s, they were touted as as ``the poor man's" overdraft.
Credit cards overcame problems that many people had faced with with borrowing money, as even those on very low wages could gain access to them. Plastic cards became a cheap source of unsecured credit.
Rather than apply for personal loans with their arduous application fees and rigid repayment schedules, credit cards allowed borrowers to draw down and repay at any time.
Twenty years on, far from making life easier, credit cards are the single biggest financial problem for low and middleincome earners, precisely because using credit is so easy.
Yet many lowincome earners believe they have little choice. If their refrigerator breaks down or their stove stops working, a credit card can feel like their only option.
But while credit may solve one problem, it quickly creates another: repayments attract interest rates from 16 to 25 per cent - or even more on some storebased credit cards.
Lowincome earners have few financing options and often fall prey to highinterest finance.
There is an alternative source of credit for lowincome earners - the No Interest Loans Scheme, or NILS network, which provides shortterm credit.
About 40 communitybased NILS programs operate throughout Victoria, providing cheap and effective sources of shortterm credit for the purchase of household items, particularly white goods.
The NILS scheme is available to all lowincome earners, many of whom are eligible for a Commonwealth Health Care Card and receive a pension.
NILS will not lend to consolidate loans, pay rent or bond - the finance is just for household goods.
Coordinator of the Victorian NILS Network Annette Leverett says NILS is very flexible in its approach to providing finance, although it is important for the survival of the scheme that the money is repaid.
``Our average loan is about $600 and our maximum loan is $1000," she says.
``Typically, these loans are repaid at between $15 to $30 a fortnight with the entire loan usually repaid within 15 months.
``We do not charge any interest on these loans and we can be very flexible, in as much as the borrower can negotiate to reduce their repayments or even miss some repayments if suddenly they find they face other financial problems."
Applicants for a NILS loan must meet certain conditions and demonstrate that they can repay the loan.
The idea behind the NILS scheme is to give lowincome earners greater independence and control over their finances.
``We also backup this scheme with a buying service, which shops around to buy white goods at the lowest possible price for our clients with no delivery fees on these purchases, which can be a big saving in itself," Ms Leverett says.
This overcomes two of the biggest problems lowincome earners face when buying household goods.
If you don't have a car, it's hard to shop around. And if you are on a tight budget, delivery fees can be prohibitive.
``We have seen enormous growth in the need for this sort of finance during the past eight years and, really, our biggest problem is attracting the capital to put more schemes in place, particularly in regional areas of Victoria," Ms Leverett says.
``This is a shame because $1million in seed funding from the State Government, for example, is more than enough money to get a community lending scheme going.
``This will, in turn, save the Government millions, as it will prevent hundreds of families falling into financial difficulties, which only leads them to rely on social security."
Ms Leverett is based at the Collingwood office of the Good Shepherd Youth and
Family Services.
PRICING CREDIT
Lender Item Amount Rate Monthly Term Total
($) (%) repayment (mths) cost
NILS Fridge $766* Nil $40 19 $766
Credit Fridge $867 26.6 $40.85 29 $1,185
*The price available for those using the Good Shepherd loans program and buying
scheme.
Using the buying service, borrowers can save $419.
SOURCE: Good Shepherd Youth and Family Services, Collingwood
© 2002 The Age
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