With children nothing is predictable and there are often unexpected costs, from childcare and school essentials, to clothes and shoes.
If you don’t have the cash to pay for these things, you may be able to apply for what’s called a family loan or child benefit loan where you commit to having your child benefit paid into a certain account and in return, get access to a loan from your local credit union. They are cheaper than other short-term loans and designed to help those who may be struggling financially.
However, no debt is worth taking out unless you fully understand how it works, and how much it’s going to cost.
Here we look at how child benefit and family loans work, who they are for, what to consider before applying and the best alternatives.
How to get a loan with child benefit
Child benefit is a regular payment to help you with the cost of being a parent. If you qualify, you’ll get a set amount of money per month, per child. But since a single instalment won’t always be enough to cover larger items, if you need to pay for something for your child, such as nursery fees or new school shoes, and don’t have the cash, a loan might be an option to consider.
Most credit unions offer cheap loans which can be paid back through your child benefit payments.
» MORE: Consider budgeting loans and advances from the government
How family loans and child benefit loans work
Some credit unions offer child benefit loans, also known as family loans. They aren’t free but the interest rate on them is generally cheaper than you’d get from a payday lender.
Each credit union will have its own rules on how the loan works but in general when you take one out, you’ll then repay the loan from your child benefit.
You’ll need to open an account with the credit union and arrange for your child benefit to be paid directly into it, as your repayments will come from here (a small amount will be taken from your repayments to help you build up a small savings pot). You’ll then be able to access a loan of up to £1,000, usually for up to 18 months.
As an example:
| Amount | Term | Interest rate | Monthly repayments (12 months) | Final month instalment (13th month) | Total repayment (with interest) |
|---|---|---|---|---|---|
| £1000 | 12 months | 35% APR | £91 | £76.72 | £1,168.82 |
The idea behind these loans is to provide an affordable way for people to access cash, help them repay this in a manageable way, and build up a small savings pot with the remainder of the unused child benefit allowance, keeping it available to spend each month if needed.
What to consider before applying
The most important thing to look at before taking out a loan is the costs. Can you afford to take on more debt and what are the costs if you are late with repayments or miss them altogether?
However, it’s also worth looking at what alternative help and support is available. First check you’re getting all the benefits you’re entitled to by using a free benefits checker like the one from Turn2Us. The charity also lists all of the grants available from organisations, local councils, and the government, so make sure you’ve exhausted this list before taking out a loan.
» MORE: Tips for successfully applying for a loan
The pros and cons of a child benefit loan
It’s also worth assessing the pros and cons of these types of loans.
The pros of a child benefit loan
- Cheaper than payday lenders
- Accessible to those excluded from high street loans
- Helps to build up a savings pot
The cons of a child benefit loan
- The loans are not free, so always check the interest rate
- There may be more suitable help available elsewhere
- Credit unions aren’t available everywhere and have criteria for joining
» MORE: Managing your money with a long-term health condition
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