When an emergency expense happens, you could find yourself needing a loan to help cover the costs. If you’re receiving benefits, you may be worried that your income status will have an impact on whether you’re eligible for one.
It is possible to get a loan if you’re on benefits. There are even certain types of loans that are designed for people on benefits. In this blog, we will try to explain the different ones that you could be eligible for.
If you’re receiving certain benefits you could apply for a budgeting loan from the Social Fund. Budgeting loans are designed to help people on low income pay for sudden or essential costs. This could be replacing broken household appliances, travelling expenses or home improvements.
Budgeting loans are interest free, which means you will just repay the amount that you borrowed and nothing extra. The loan is normally repaid in up to two years, with repayments being automatically deducted from your future benefits. You could borrow between £100 and £812 depending on your circumstances.
You will be eligible for a budgeting loan if you have claimed any of the following for the last 6 months:
If you moved from Universal Credit to Pension Credit, any time spent claiming Universal Credit will count towards the 6 months.
You can apply for a budgeting loan, on the government website.
If you’re receiving Universal Credit, you may be eligible for a budgeting advance. It works the same as a budgeting loan however, can only be applied for if you’re receiving Universal Credit.
Again, you could borrow between £100 and £812, with repayments automatically deducted from your regular Universal Credit payments.
You can apply for a budgeting advance by contacting Universal Credit.
If you’re not eligible for a budgeting loan or advance, you could join a credit union and see if they will offer you a loan. A credit union is a community run savings and loan initiative, where members pool their savings together to lend to one another.
By joining you could get access to a loan with a low interest rate, with a cap of 1% in Northern Ireland and 3% in the rest of the UK. Being part of a credit union will also encourage you to save money and you can access financial advice and assistance through them.
To join a credit union though, you must have something in common with its other members. This could be your employer or the area that you live in. Some credit unions may require you to save a small amount of money with them before you can get a loan, so it’s worth finding this out beforehand.
You can find credit unions you may be eligible for online.
A personal loan may be another option for you to consider. Some lenders will count your benefits as a regular income, and if you pass their credit and affordability checks approve your application.
The interest rate on a personal loan will be a lot higher than the other types of loans mentioned above though, so you need to consider this before you apply for one.
If you’re looking for a loan on benefits, you may eligible for the following personal loans:
Doorstep loans: A doorstep loan, also known as a home credit loan, works a little different to other forms of borrowing. This is because all interaction with the lender takes places from your own home. An agent working for the lender will visit your home to issue your loan and will return to collect your repayments.
Secured loans: A secured loan allows you to borrow money that is tied to one your assets – like your home or your car. If you are unable to make your repayments, as a last resort, the lender can use the asset to repay the money.
Guarantor loans: A guarantor loan involves a friend or family member signing for the loan alongside you. They will act as your guarantor and be responsible for making repayments if you can’t.
When searching for ‘benefit loans’ or ‘loans for people on benefits’, you may come across payday loans. Payday loans require you to repay the loan in full the next time you are paid, with extra charges if you can’t. So, they can end up being an expensive way of borrowing money.
If you’re thinking of taking out a loan, but already struggling to manage your finances, it might be worth getting some help and support. The following organisations have been recommended by the FCA and provide free and independent financial advice:
You may be eligible for a loan from us if you’re receiving benefits on top of your employment income. We can also offer loans to people who are primarily reliant on benefits as income. You can visit our FAQ section, to find out more about the eligibility criteria for a Dot Dot loan.
Before you take out a loan, you need to think about whether you can afford the repayments. As having an extra strain on your finances could cause you financial difficulty if you are unable to keep up with your repayments and it could affect your ability to borrow money in the future.
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