A Horowhenua woman has been given a life-line to get out of debt after she got an interest free-loan.
The 57-year-old, who lives off a sickness benefit, was forced to borrow money from a finance company after her daughter crashed her car down a bank and she had to pay $2500 in salvage costs.
But with repayments of $63 a week she was struggling to afford to buy food and pay her bills on time.
"It was a huge interest rate," she says. "Every time I rang and asked for finalisation of my balance I would get charged a bit extra."
Already under the local budgeting services the woman's adviser recommended she apply for a Nga Tangata Microfinance loan.
The service was set up seven years ago by the New Zealand Council of Christian Social Services, Child Poverty Action Group and the New Zealand Federation of Family Budgeting Services to provide no-interest loans to allow people to re-finance high-interest debt and get family well-being loans.
It gets its capital from Kiwibank.
The woman said the loan had made a huge difference to her life and she is looking forward to being debt free for the first time in her adult life in a year's time.
"It has gone from my god I can't afford food, to I can get this."
The woman said she had always done it tough with money.
"Just being a solo parent on a benefit, HP [hire purchase] was the easiest way to do things."
Robert Choy, chief executive of Nga Tangata Microfinance, said the aim of the loans was to prevent the financial exclusion of people on low incomes.
It lends a maximum of $3000 for debt refinancing loans and $2000 for family loans. People have two years to pay it back. There is no interest or fees or penalties if someone doesn't pay on time.
To qualify people have to be using the budget advice services, now run under the umbrella of the National Building Financial Capability Trust.
Choy said it looked for those who had a deficit in their weekly budget because of debt repayment and had high interest debt which kept them trapped in the cycle.
"Our loan committee looks at that and if it feels the client has the ability, willingness and capacity to pay off the loan."
For some people re-financing their high interest debt with an interest-free loan can free up $40 to $50 a week which can then be used on essentials, he said.
Since its launch NTM has done 320 loans equalling to $660,000. But its lending has grown quickly in the last three years - a lift of 30 per cent in the last year alone.
The service has expanded from South Auckland and now covers most parts of the country with a focus in the North Island.
Choy said the loans were not suitable for everyone - people had to want to change and it would not help those with really high levels of debt.
"We see our loans as a very powerful tool but not the answer to every situation."
Margaret Lafaiki, a budget adviser at the Papakura Budget Service, still remembers the first woman she recommended for the interest-free loans.
"She was living on her own and the clothing trucks were turning up."
The woman was encouraged to buy technology at inflated prices and was locked into paying $200 a week to the truck shop - a situation that meant she was struggling to pay her power bills and top up her mobile phone.
The loan dropped her repayments to $25 a week.
"She just cried."
Lafaiki said it was not just those on a benefit who got into trouble. The working poor also struggled to cope with emergencies like their car or washing machine breaking down and turned to overdrafts and pay-day lenders to cope.
"People are usually good with a budget but when it happens everything snowballs."
Some pay-day lenders were charging interest rates of 2 per cent a day and if people missed a payment they must pay default fees.
Phone calls to a lender can incur a charge of $12 while a letter can cost $17.
People were encouraged to top up their loans and draw more money once they had paid it back.
"It just becomes part of life ... people are being trapped."
Lafaiki said the interest-free loans were not a quick fix - people had to be monitored over the time it took to pay the money back.
"We have to see them wanting to change," she said.