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Good Shepherd New Zealand announced the programme in Dunedin yesterday.
Presbyterian Support Otago will help people access the loans, which are provided by BNZ.
It is supported by the Ministry of Social Development and covers all of Otago and some of South Canterbury.
It offers the No Interest Loan Scheme (Nils) for between $300 and $1000, which has a maximum 12-month term.
Applicants can also choose the StepUP scheme for loans between $1000 and $5000, which has a fixed interest rate of 6.99% per annum, for between three months and three years.
The money must be used for essential household goods and repairs such as furniture, appliances, computers and car repairs.
South Dunedin woman Silei Matamua (32) was first trapped by predatory lending by a mobile shopping van in Auckland, aged 18.
''It stopped next door to our house and a guy came out and looked so friendly. I bought a cellphone off him, not knowing what I was getting into,'' Ms Matamua said.
She was then forced to pay exploitative interest repayments.
She went to Family Works for financial mentorship three years ago, started working as a volunteer, and got a job there earlier this year.
She will now help others into the new loan scheme.
She lives in South Dunedin with her teenage son and younger brother.
''I've made bad choices in life, but I'm getting there.''
While she is better with her finances now, having a no-interest loan option was a good security measure, she said.
''It won't leave you in hardship. If my fridge breaks down I'll get a fridge.''
Good Shepherd chairwoman Dame Diana Crossan said it established the loan schemes throughout the country with various community organisations.
''The great thing here with Presbyterian Support is we have workers on the ground. In other places we don't have the workers.''
Presbyterian Support Otago practice development manager Melanie McNatty said it became involved as there were not enough financial options for some people, which drew them into debt.
''We were also involved with a large employer that closed down and realised there was a huge need out there. People were hiding their debt until they had no other options.''
Dunedin Mayor Dave Cull said the fact the scheme was needed was a reminder many people in the community struggled to afford even the most basic needs.
BNZ head of community finance Frances Ronowicz said it was ''on a mission'' to disrupt predatory lending.
What is it?
- A community loan scheme for Otago and South Canterbury residents.
- Includes a no-interest loan of up to $1000 and a low-interest scheme for up to $5000.
- Funds must be spent on household necessities.
- Applicants must be eligible for a Community Services Card.
- Residents can apply through Presbyterian Support Otago.