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- Can I get a loan on benefits?
- What is the eligibility criteria for a benefits loan?
- What benefits count as income?
- Which benefits don’t usually count as income?
- How to apply for a loan on benefits
- Do I need a guarantor to get a loan on benefits?
- Alternatives to loans for people on benefits
- Getting advice if you’re on benefits and in debt
Getting a loan when you’re on benefits might seem unlikely, yet there are various ways to borrow money while receiving state support.
What some lenders and loan brokers advertise as ‘benefits loans’ or ‘loans for people on benefits’ may be an option. But it’s important to think carefully before applying because it will likely be costly.
In most instances, alternatives such as the interest-free loans available through the government to people claiming benefits are worth exploring first.
Can I get a loan on benefits?
It can be possible to get a loan if you’re on benefits, but your options are likely to be limited because lenders usually require you to have a set, regular yearly income. It’s usually tough to get a loan from a major bank if your income is low and you’re on disability or sickness benefits.
You may be eligible for a benefit loan advertised by certain lenders, but this will almost certainly be more expensive than a regular personal loan. People trying to get a mortgage on benefits face a similar situation, too.
When searching for loans for people on benefits, you’ll see they’re usually only available from specialist lenders rather than the more familiar high street banks and lenders. Whether you can afford to repay the money you need to borrow is important in determining if you can get a loan. This might prove difficult if your income is mainly or entirely reliant on benefits, and is the main reason why interest rates on loans for people on benefits are usually so high.
» MORE: Compare personal loans
Can I get a loan on PIP?
Personal Independence Payments (PIP) – or payments through the Disability Living Allowance (DLA), which PIP is replacing – may help you qualify for a loan on benefits.
Both PIP and the DLA are long-term benefits that could be counted as income. Because they provide a regular income, you might find that lenders are more ready to accept them as a source of income for a loan than if you were on other potentially shorter-term benefits.
You can claim PIP by contacting the Department for Work and Pensions (DWP).
Can I get a loan on Universal Credit?
If you receive Universal Credit and need a short-term loan to help cover certain essential expenses, you may be able to get an interest-free budgeting advance from the government.
To repay the budgeting advance, your Universal Credit payments will be lowered. The minimum you can borrow is £100.
When it comes to regular personal loans, some lenders will be willing to count Universal Credit payments towards the income requirements for a loan on benefits and others won’t.
» MORE: Budgeting loans and budgeting advances
What is the eligibility criteria for a benefits loan?
You can expect standard eligibility criteria to apply to loans for people on benefits. Generally, these include:
- being aged 18 or over
- being a UK resident
- having a UK bank account
At the same time, you’ll need to prove to the lender that you can repay the loan. The criteria that is considered here will usually vary between lenders, which is why you might be rejected for a loan by one lender but accepted by another.
Usually, a lender will look at your credit score to try to assess your reliability as a borrower. But more importantly, lenders want to know that you have a regular income that can be used to pay back what you owe after you’ve covered your regular expenses.
For a standard personal loan this would usually come from employment but, with loans for people on benefits, lenders will consider certain benefits to be an income suitable for repaying a loan.
Can I get a loan on benefits with bad credit?
It may be possible to get a loan on benefits even if you have bad credit. Some lenders that provide benefit loans say that they mainly assess your ability to pay back the loan when you apply, rather than your credit history. They may consider your application even if you have a poor or limited credit history.
But if you don’t have the best credit history because you’ve struggled to keep up with your repayments in the past, it’s likely a loan won’t be the right choice for you.
It’s a good idea to explore alternatives to a loan, because your available options will almost certainly be expensive. It’s also important to only apply for loans you’re confident about getting, because the lender usually does a hard search of your credit history when you apply.
Too many hard searches over a short time can harm your credit score, because it looks like you may be in financial difficulty and are relying on credit.
What benefits count as income?
The type of benefit you’re receiving can be important when a lender is deciding whether to approve you for a loan. Some of the benefits that lenders often find acceptable as income include:
- Disability Living Allowance (DLA)
- Personal Independence Payment (PIP)
- Universal Credit
- Working Tax Credit
- Employment and Support Allowance (ESA)
- Child Tax Credit
- Child Benefit
- Fostering Allowance
- Incapacity Benefit
- Industrial Injuries Disablement Benefit
Among these, lenders might view certain long-term benefits, such as DLA or PIP, as providing an income much closer to how a salary might work than shorter-term benefits. The benefits accepted as income will differ between lenders so it’s worth checking with the lender directly what they will accept as income.
» MORE: Can I get car finance on benefits?
Which benefits don’t usually count as income?
While different lenders are willing to consider different benefits as an eligible source of income, some benefits tend to be excluded by most. Generally these include:
- Jobseekers’ Allowance
- Income Support
- Housing Benefit
- Pension Credit
Getting these benefits won’t usually count against you when applying for a loan of this type, but they’re unlikely to be enough on their own to qualify you for a loan.
How to apply for a loan on benefits
If you need to apply for a loan on benefits, you’ll often need to do so through an online broker. The application process varies depending on the broker, but typically you’ll have to specify the amount you need to borrow, the term you want to pay it back over and what the loan’s for.
You’ll also need to share personal information, including details of your:
- income
- benefits
- employment status
- typical outgoings
The broker will usually conduct a soft search of your credit history to check if any lenders are willing to offer you a loan, which won’t affect your credit score. Make sure you find out what type of credit check the broker will do, because a hard search could affect your credit rating and will show on your credit report.
If the broker says you could be eligible for a loan and you want to proceed, you’ll need to complete the lender’s application form. Usually, the lender will carry out a full hard search of your credit file.
If you’re formally approved for a loan after these final checks, you can accept the offer. Depending on the time of day you accept, you might get the money in your account on the same day or the next working day.
» MORE: How to apply for a loan
How much can you borrow?
Loans for people on benefits are typically available for between £50 and £10,000. The amount that you’re allowed to borrow will depend on the size of loan your lender thinks you can afford to repay and your personal situation.
What loan terms are available?
Lenders offering loans on benefits typically offer a range of repayment terms. The shortest start at one month while the longest go up to 60 months. The longer terms might only be available when borrowing larger amounts.
Partner SpotlightNerdWallet has partnered with Monevo
Other loans may be available in the UK loans market that are not included in this service.
Do I need a guarantor to get a loan on benefits?
You won’t usually be asked to provide a guarantor to get a loan on benefits, but some specialist lenders do provide guarantor loans. A guarantor is usually a friend or relative who agrees to pay back what you owe to a lender if you’re unable to keep up with your repayments. If you have a bad credit score and your loan application is refused, you might find it easier to be accepted for a loan that requires a guarantor.
» MORE: How do guarantor loans work?
Alternatives to loans for people on benefits
Careful thought is always required before taking out a loan for people on benefits, and it isn’t a borrowing option that will be suitable for all. Before applying for a benefits loan, you could consider the following alternatives first:
A budgeting loan or advance
These are interest-free loans from the government that you might be eligible for if you receive certain benefits and have an expense it is essential that you pay. You can apply for a budgeting loan if you receive either Income Support, Pension Credit, Income-based Jobseeker’s Allowance, or Income-related ESA, while a Budgeting advance might be available if you receive Universal Credit.
If you’re struggling financially while you wait for your first Universal Credit payment to come through, you might also be able to get an advance payment on this – called a Universal Credit advance.
» MORE: Budgeting loans and advances
A credit union loan
Credit unions are not-for-profit organisations that offer loans at capped interest rates. You’ll need to become a member of the credit union to apply for a loan, but you can sometimes do both at the same time.
Credit union loan rates are capped at:
- the equivalent of 3% a month – 42.6% APR – in England, Scotland and Wales
- the equivalent of 1% a month – 12.68% APR – in Northern Ireland
These rates are higher than loan rates offered by banks and building societies, but less than the interest rate you would pay on a specialist loan for people on benefits.
» MORE: Credit union loans explained
Child benefit loan
If you receive child benefit, you might want to consider a child benefit loan, or family loan, from a credit union. In return for having your child benefit paid directly into a credit union account, you’re able to access a loan that could have a lower interest rate and be more affordable than other types of loan people can get on benefits.
» MORE: Learn about child benefit loans
Family and friends
Before you take out a loan, you could ask family or close friends if they’re able to help you out financially. This can often be one of the simplest and cheapest ways to borrow, although it’s important that all parties involved know the terms on which the loan is being made and how it will be repaid.
Other benefits and help
Making sure you’re getting all the benefits and financial help you’re entitled to is a must.
This might be in the form of help with childcare costs or if you receive PIP, you could be eligible for additional money on top of what you already claim. This could be through a top-up, or premium, on other benefits such as Jobseeker’s Allowance, Housing Benefit, Income Support, Working Tax Credit, ESA or Pension Credit, or reduced council tax and road tax. You can find out more about the benefits you’re entitled to by checking with your local benefits adviser or using an online benefits calculator, such as this calculator from poverty charity turn2us. You may also be eligible for an emergency loan or grant.
Getting advice if you’re on benefits and in debt
If you’re on benefits and struggling with debt or your financial situation generally, borrowing through a loan might not be the solution to your problems. In fact, it could make them worse. It’s always best to seek debt help in these situations rather than hope the problem will go away. You can get free debt help from charities such as:
- StepChange
- Citizens Advice
- National Debtline
These charities could help you apply for the ‘Breathing Space’ scheme if you live in England or Wales, which gives temporary protection from your creditors. In Scotland you can get similar protection from a scheme called the Debt Arrangement Scheme. Northern Ireland doesn’t currently offer an equivalent scheme.
» MORE: Debt charities and how they can help
Image source: Getty Images
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by Rhiannon Philps