MSE News: Iceland now offers interest-free loans if you're struggling with the cost of living

MSE_Helen_K

Iceland has begun offering interest-free loans of up to £100 to those struggling with the cost of living, with the money to be used on your Iceland shop. But - as with any borrowing for everyday living expenses - be careful as you may get stuck in a cycle of debt... 

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'Iceland now offers interest-free loans if you're struggling with the cost of living - but be careful as they will impact your credit score'

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Rosa_Damascena

The CEO has quite a profile as one of the less greedy supermarket leaders. The idea of paying for food on tick really does take us back to times of dire poverty.

Stuart_W

This is a carefully trialled product for a very specific target audience - families who face a bigger food burden during school holidays, to spread that cost out over term time.

The guarantee of no interest and no late payment costs is helpful, but as a continuous card authority repayment it may just transfer the cost to an overdraft if not careful.

If this prevents to use of expensive short term loans it is a good thing.

However, even for limited income poor credit score families it can actually be beaten in some cases by a credit union loan or sub-prime credit card.

How can interest free be beaten?

Iceland's "bonus card" works like a savings card. You can top it up (via cash or card) and instantly receive a £1 bonus for every £20 added.

So if you top up £60 for example via subprime credit card or credit union loan, you get £63 to spend at Iceland. Repay £10 per week and you would pay less than £3 in interest. (If you have access to cheaper loans/credit cards you are not the target audience for this loan scheme).

A subprime credit card could far too easily go wrong or be used too much or repayments missed with disasterous consequences, and requires discipline to make weekly payments. A credit union loan likely to be too much faff or too slow, so for the target audience the Iceland loan scheme is probably a better bet - unless it causes massive overdraft charges when payments are automatically taken by continuous card authority.

Usually borrowing for food is a bad idea, but in a limited context during periods of increased costs (school holidays) with repayment times limited to when those costs fall again (term time) this product may be of cautious benefit to some free school meal families.