Grant J Everett
Microfinance is a type of lending that is designed to help combat financial exclusion and to encourage borrowers to have a healthier relationship with money.
These sorts of loans are offered on a not-for-profit basis in order to help people improve their quality of life. They are targeted towards the basic resources every home needs, such as buying a second-hand car, car repairs, replacing broken white goods or furniture, getting a computer, paying for vocational education, or for medical expenses.
StepUP has won Money Magazine’s Best Socially Responsible Product on three occasions, so we will look at it as an example of a loan option for people on low incomes who have had difficulty accessing credit from banks.
StepUP is an initiative from Good Shepherd Microfinance and National Australia Bank (NAB). StepUP will lend amounts from from $800 to $3000, and allows up to three years for you to pay it back. There are no fees, and these loans have a reasonably low fixed interest rate of around 5.99% per annum (although it may vary slightly, case-by-case basis). These loans are not available for cash, or the purposes of debt consolidation, holidays, or bills. (See the box for an explanation).
Some of our readers may not have taken out a loan before so we’ll go through an example to show how interest works. Interest is the cost of the loan, although some loans have additional fees as well.
With a fixed interest rate, the total amount you are up for will depend on how much you borrow, the frequency of your instalments and the term of the loan. For instance, according to the StepUP online repayment calculator, Bob borrows $1,000 at 5.99%, and agrees to pay it back over 2 years in fortnightly instalments. Bob’s fortnightly payments would be $20.15. By the time Bob pays back his loan plus interest, it comes to $1,063. If Bob paid it back over 3 years, however, then he’d be paying $13.88 a fortnight, but after repaying his debt plus interest Bob would have parted with $1,095.
There are guidelines for sorting out who can get a StepUP loan. When you first call, a microfinance worker will ask you why you want a loan, as well as details about your income, your housing arrangements, whether or not your utility bills are up to date, the health of your bank account, and whether you have any debts. You must also have a Health Care Card, a Pension Card, or be receiving Family Tax Benefit A. You have to have been living in your current premises for more than 3 months, and your annual income has to be less than $45,000.
If you meet the eligibility criteria you will get an Information Pack that outlines exactly what documentation you’ll need to bring for a face-to-face interview. You will need to prove your identity using the same 100 points method that any bank would require.
When you have a face-to-face meeting, the microfinance worker will talk about your monthly expenditure and determine whether a StepUP Loan is right for you. If everything seems good, you’ll be asked to complete a loan application form. The worker can also assist you in completing this application and double-checking that everything is accurate and documented properly. Your paperwork will then need to be assessed by NAB, which will include a credit check. NAB will take up to ten working days to assess your application. If your loan is declined, you’ll receive a call from the StepUP Microfinance Worker and a letter from NAB explaining why.
If your loan is approved, then you just need to visit a NAB branch to sign the loan contract and receive a cheque made out to whoever is going to supply you with the product or service you want, such as a car dealership, a computer store, or your local TAFE.
Good Shepherd Microfinance is Australia’s largest microfinance organisation, and they offer other affordable financial programs for people on low incomes such as the No Interest Loan Scheme.
Phone 13 64 57