Can you get a loan if you are on benefits?
It is not as easy to get a loan when you are on benefits, but you may still be eligible for a loan from certain sources. First of all, you must be over 18 years old and a British citizen or resident. If you are on benefits, then their regular affordability checks will be more strict. Lenders will want to know your minimum income, your current level of debt, and the purpose of the loan. Before you go looking for loans, you need to be sure that you can actually afford to pay them back. Avoid applying for multiple loans that could damage your credit history and future chances. You have to figure out if there are other ways to get financial help without going so far into debt. This could be from the council or government, or independent charities. If you do need to take out a private loan, your benefits may not qualify as income. These are the benefits which commonly will or will not count as part of your qualifying income for a loan:
- Incapacity Benefit ✔
- Disability Living Allowance ✔
- Severe Disablement Benefit ✔
- Disability Working Allowance ✔
- Industrial Injuries Disablement Benefit ✔
- Working tax credit ✔
- Income from fostering ✔
- Tax Credits ✔
- Housing Benefit ✘
- Income Support ✘
- Child Support Payments ✘
- Job Seekers’ Allowance ✘
- Pension Credits ✘
Budgeting Loan and Budgeting Advance
If you are receiving certain benefits and need to cover a sudden living expense, then you could get an advance payment or a budgeting loan. A budgeting loan is preferable if you have been claiming benefits for at least 26 weeks. You will have 104 weeks to repay it, and there will be no interest to repay on top even after all of that time. Universal Credit claimants can ask for a budgeting advance instead. You could get a payment to help you pay off a necessary living expense which you would then pay back with your benefit payments through small deductions. It is only possible to claim an advance in the first month while you are waiting for your initial payment. You need to claim certain types of benefits such as ESA, JSA, and Income Support to apply for a budgeting loan rather than an advance. Your work coach can help you with applying. Bear in mind that you may not get the loan or an advance.
Local Welfare Support Schemes
If you cannot get help from the Jobcentre and DWP, then try your local council. Rather than a loan, you could get Housing Benefit or a Council Tax Reduction to help you afford rent and council tax. This will free up some of your money to use for the other pressing costs. There may be a local welfare assistance scheme fund to help people financially in emergency situations. For example, if you are at risk of eviction or unable to feed your family. This is in place of the discontinued Social Fund which was previously available for people on benefits. If you are having trouble specifically with housing costs, then you could apply for a Discretionary Housing Payment. You might be able to backdate this as well. Find your local council and contact them to find out if they could offer you any help.
Grants for People on Benefits
Your next option before turning to a lender is to look for grants. The government or a local charity could offer a grant that you are eligible for. There are grants for people in all kinds of specific situations, and if they award a grant then it could help you in a crisis. If you do receive a grant, you will not need to worry about paying it back, because you do not have to. You can search for free financial support in your area with Turn2Us. They could also help you to figure out if you have further benefit entitlements that you are not claiming. You may also be able to get a grant if you need to renovate your home to adapt it for a disability. Ask for planning advice from your local Home Improvement Agency before you apply for funding. Then you can look into options like the Disabled Facilities Grant.
Credit Union Loans for People on Benefits
A local credit union could be the alternative you are looking for if you do not qualify for any of the financial support above. It is a better choice than payday loans, especially if the majority of your income is benefits. Credit unions are co-operative organizations where a community of members pools their savings. They are not-for-profit and must be legally regulated. Credit unions help their members with financial advice, savings accounts, and low-rate loans. You will need to join a credit union before you can loan money from them, and they may require you to build up savings first. They will charge interest on the loan, but it will be capped lower than other loans would be. Credit unions are made up of people with something in common, such as profession or area of residence. Find a credit union to join.
Guarantor Loans and Secured Loans
With a secured loan, you can put up your property as collateral. This means that if you fail to repay, the lender can reclaim the property from you to recover the money. If you are on benefits, it is less likely that you will have a home with a mortgage or a high-value asset that you could afford to put at risk this way. Instead, you may be able to get a loan if you can find someone that you trust to be your guarantor. If they agree to it, then they will be legally liable for repaying your loan if you fail to do so yourself. An applicant on a low income is more likely to get a loan if they have somebody in a better financial position to back them up. Guarantors need to have a good credit history and stable income at an acceptable level. You and your guarantor must both be completely comfortable with the agreement.
Payday Loans for People on Benefits
The absolute last resort if you desperately need money in excess of your income and benefits is a payday loan. These loans are available quickly, but they come with a price. High interest rates mean that you will end up paying much more than your original loan back to the lender. The longer it takes you to pay it back, the more interest they will keep adding to your balance. This is why you should not take out a loan if you know that you will get into further debt and struggle with trying to pay it off. There are plenty of providers of short term loans like Satsuma or Pounds to Pocket. There are also some lenders who specify that they consider people on benefits. These include Everyday Loans, Fair Finance, and Oakam, among others. Payday loans can range from £100 to £15,000 across as little as a few weeks up to several years. However, their interest rates can blow up to shocking amounts, such as more than 1,000%. Loans like this are very rarely a good idea, and you should read everything carefully before agreeing to one.
