Tens of thousands of applications for a payment-by-instalment plan have flooded into a British budget grocery chain just two weeks after its launch, as a cost-of-living crisis crushes UK household incomes.
Customers of Iceland Foods have sent in around 60 000 applications so far, more than the total number of loans the credit provider behind the initiative expected to offer in 18 months. Successful applicants can borrow up to £100 (just under R2 000) to pay for food at one of its outlets.
While inflation and rising energy costs have hit households across the world, Britons have been particularly hard hit in Europe, with inflation hitting double digits and climbing to a 40-year high. Price rises on the weekly supermarket shop hit 11.6% in the two weeks up to mid-August, the fastest pace since Kantar, a market research firm, began collecting data in 2008. UK consumer credit card debt increased at its fastest pace since 2005 in August, according to Bank of England data.
Terms of the Iceland Foods grocery loan
- The customer applies for the loan, which is delivered on a prepaid Mastercard;
- The initial loan size is anywhere between £25-£75 (~R500 - R1500);
- Once Fair For You, a not-for-profit consumer lender, completes a background check, the loan can be increased to £100 (~R2 000);
- Customers aren’t charged interest; Iceland Foods pays the equivalent interest to not-for-profit lending company Fair For You;
- The customer pays back £10 a week over a maximum of eight weeks;
- Payment holidays and overpayment are available without a fee;
- There are no penalties or fees involved, but customers’ credit ratings could be affected if they stop paying, and access to Fair For You services may be terminated.
"It says something about the economic situation and the pressures that many families are under that there has been such a strong take up," said Simon Dukes, chief executive of Fair For You, a UK Treasury-backed consumer credit provider that is providing the loans.
The company was expecting to issue around 50 000 loans over 18 months, according to Dukes. Assuming a 40% acceptance rate, they could hit that number in eight to 10 months if take up continues at this pace, he said.
There are currently about 1 000 customers a day submitting applications, he added. This is well down from the initial flurry when the offer was first announced, when there were 15 000 submissions per day.
Iceland Foods didn’t immediately respond to a request for comment.
Rising bills
The grocery chain announced the initiative last month, becoming one of the first supermarkets to enter the burgeoning consumer credit sector as households wrestle with rising bills.
At the time, Labour MP Stella Creasy, who has campaigned for greater regulation of consumer credit, tweeted that such interest-free credit was likely to lead to higher spending and further debt.
But Dukes defending the offer, saying that it was preferable to using a loan shark or a payday lender, which often charge exorbitant sums of interest.
"Micro loans work because they are small enough to be paid back without causing angst," he said. "It allows people to get control of their finances - which is often all they need."
--With assistance from Katie Linsell.