An alternative to the cycle of debt

A new low-interest loan scheme is helping people get work and move off benefits.

Olivia, a single mother of three young children, works with children with special needs. Long shifts mean she has to be available between 7 am and 11 pm.

But when her car reached the end of its life, Olivia worried that she might not be able to stay in work and off the benefit.

Olivia was already working with a Salvation Army budget advisor, who told her about a new low-interest loan called StepUP being offered by The Salvation Army. Olivia was helped through the application process and the loan she received enabled her to buy a reliable car.

The Community Finance initiative is a partnership between BNZ, not-for-profit Good Shepherd, the Ministry of Social Development and The Salvation Army. It is aimed at workers on low incomes and beneficiaries unlikely to qualify for loans from banks.

‘I knew I couldn’t get a loan from a bank but I didn’t want to return to the benefit,’ says Olivia. ‘I’d been off the benefit and working for 18 months.’

The affordable loan scheme is being piloted by Salvation Army Community Ministries in South and West Auckland. It offers StepUP low-interest loans of between $1000 and $5000 and No Interest Loan Scheme (NILS) loans up to $1000. There are no fees.

It is an alternative to third-tier lenders, which have trapped many Salvation Army clients in a cycle of debt.

Salvation Army Community Finance Worker Jodi Hoare says the loans have been used to buy cars, household appliances and furniture, through to paying for car repairs, funerals and dental work.

She says many clients have used the loans to purchase cars - a requirement for many jobs in Auckland where travel distances can be great and work hours not conducive to public transport. But loans for seemingly small things could also be life changing.

Developing people’s financial literacy is a central component of the loan application process.

Working with The Salvation Army, clients are helped to closely examine their income and expenditure to get a full understanding of any existing debt, its hidden costs and how to better manage repayments.

Jodi says third-tier lenders have punishing interest rates and penalty payments.

She cites one loan applicant who was paying 360% interest to a pawn shop after she failed to repay the loan within the required four-week period.

The car loan and support Olivia received has enabled her to keep a steady job as well as working as a teachers’ aide at a school for special needs children. She now intends to study for a qualification in this field.

• Find out more at www.salvationarmy.org.nz/loans

Pictured: Community Finance Worker Jodi with Olivia