A government-backed scheme to provide low-cost loans from Credit Unions was launched in 2018 .
The loans are called It Makes Sense loans – and they provide small, low-interest loans for people on Social Welfare or State Pensions.
Avoid Moneylenders if Possible
The banks don’t normally lend money to people whose only income is social welfare or the state pension. This could result in some low-income families being tempted to use high-cost credit providers (moneylenders) instead. ( A high-cost credit provider is one where the total cost of credit to the consumer under the agreement is in excess of an APR of 23 per cent.)
Over 310,000 people borrowed almost €240 million from high-cost credit providers (moneylenders) in Ireland in 2018.
In Ireland, until November 2022 , there was no law that set the maximum interest rate which a licensed credit provider could charge. This meant that some lenders after collection charges were included, were charging APRs of as much as 287%.
A €100 loan at 287% APR would end up with interest charges of €30 over 6 months.
In November 2022 – the Consumer Credit (Amendment) Act 2022 was enacted and this introduced an interest rate cap on high-cost credit agreements as follows:
1% per week simple interest on fixed-rate loans, up to a maximum of 48%,
2.83% nominal interest on the outstanding balance per month on running accounts.
Someone taking out a €1000 loan at 48% interest over 2 years would end up paying back €1960 .
The APR on some of these high cost loans can still be as high as 152% – even with the new restrictions.
- A 1 year loan of €1000 at 48% would require a payback of €1480 over 52 weeks which works out at an APR of 128% !
- A 6-month loan of €500 at an interest rate of 26% would out at an APR of 152% ! (Total payback of €630)
Credit Union Loan Rates
These Credit Union loans should reduce the reliance on high-cost credit providers (previously known as moneylenders).
The maximum interest rate that credit unions can charge for an It Makes Sense loan is 1% a month (which is 12.6% APR). For example- at a rate of 12.6% APR a €500 loan over 6 months would be charged a total interest of €15.72.
A high-interest lender (moneylender) would typically charge interest of 26% which works out as an APR of 151.96% on a loan of €500 over 6 months. (Total interest of €130). This is 8 times more expensive than a Credit Union loan.
For comparison – the lowest APR available on a personal loan from a bank is about 6%. Which is lower still . See the list of the best bank personal loan rates here.
These Micro Credit loans can be for any purpose, including repayment of outstanding debt. The loans can be taken out for a minimum period of one month up to a maximum of 2 years. The minimum loan amount is €100 and the maximum amount is €2,000.
Credit Union Membership:
Applicants for a loan will need to become a member of the credit union – and anyone can join on the spot and be considered immediately for one of these loans. (provided that they live in the local area).
Usually, loans will be granted within 24 hours of becoming a credit union member and making an application.
Loan repayments are made by deductions each week from social welfare or pension payments via the Household Budget Scheme or by direct debit or standing order from a bank or credit union account.
These It Makes Sense loans are available nationally . An up-to-date list of Credit Unions that are issuing these It Makes Sense loans can be found here. There are about 100.
People in receipt of the following will be eligible to apply:
Note Being in receipt of social welfare does not entitle a potential borrower to a loan. The decision to grant a loan remains with the credit union.
Back to Work Allowance
Back to Work Enterprise Allowance
Jobseeker’s Allowance (and Jobseeker’s Transitional payment)
State Pension (Contributory)
State Pension (Non–Contributory)
One-Parent Family Payment
Widow’s, Widower’s or Surviving Civil Partner’s (Contributory) Pension
Widow’s, Widower’s or Surviving Civil Partner’s (Non–Contributory) Pension
Back to Education Allowance
Supplementary Welfare Allowance (basic payment)
Lowest Bank Loan Rates in Ireland