Getting a loan if you’re receiving state benefits can be difficult especially if your income is low or you’re unemployed. That’s because lenders want to be sure you can afford the loan repayments before they agree to lend. But there are some options you can explore.
There are specialist online brokers who advertise loans for people on benefits. These include personal loans for people on disability benefits and loans for people who are unemployed and on benefits.
But these loans usually have very high interest rates. So you may want to consider other options first. For example, the government provides small loans for people claiming Universal Credit and some other benefits, and credit unions offer loans at reasonable rates for people on benefits.
Yes, loans for people getting the Personal Independence Payment (PIP) are available. As PIP is a long-term benefit, some lenders are happy to treat it as regular income when assessing you for a loan.
PIP is a tax-free benefit you can claim if you have a long-term physical or mental health condition or disability. It’s gradually replacing Disability Living Allowance for anyone aged 16 or over and under State Pension Age. In Scotland, it’s called the Adult Disability Payment.
You might qualify for a Budgeting Advance from the DWP (Department for Work and Pensions) which you can use to pay for emergency household expenses or costs you incur in getting or keeping a job. Or, if you’re struggling to make ends meet whilst waiting for your first Universal Credit (UC) payment, you can apply for a Universal Credit Advance. In both cases, your UC payments are reduced until you’ve paid the money back.
You may also be able to get a loan through a credit union or an online broker specialising in loans for people on benefits.
Lenders assess your income when deciding if they’ll lend to you. Some lenders treat the following benefits as income:
Jobseeker’s Allowance, Income Support, Housing Benefit and Pension Credits do not usually count as regular income.
To get a loan if you’re on benefits you’ll need to:
Lenders also assess a mix of things before deciding whether to lend including your other borrowing, outgoings, credit score, savings and assets.
If you’re on benefits, you may qualify for the loans below:
Loans from the government. Budgeting Advances are interest-free loans which you might be able to get if you’re on Universal Credit. If you’re on Income Support, Pension Credit, Income-based Jobseeker’s Allowance or Income-related Employment and Support Allowance, you may qualify for a Budgeting Loan instead.
Credit union loans. Some credit unions offer small loans (typically £500-£1,000) to people on benefits at much lower rates than payday loans. You may have to pay in one of your benefits, such as your Child Benefit, as a condition of the loan.
Personal loans. With these loans you don’t need to provide anything (like your home or car) as security. If you’re on benefits and on a low income, the personal loans you’ll qualify for are likely to be small, high-interest loans, making them a costly way to borrow.
Payday loans. These are small, short-term loans to tide you over a difficult period. But they have very high interest rates and big fees if you miss repayments so can quickly lead to problem debt.
Secured loans. With these loans you provide your home, car or another asset as security for the loan. There’s less risk for the lender as they can repossess the asset if you don’t keep up repayments, but more risk for you.
Guarantor loans. With these loans a third party, such as a family member, agrees to repay the loan if you’re unable to.
Loans for bad credit. Loans for bad credit are available, but with these you’ll pay a high interest rate to offset the risk to the lender.
The way you apply for a loan on benefits varies.
For a Budgeting Advance, speak to your work coach, use your Universal Credit online account or call the Universal Credit helpline.
For a Budgeting Loan, apply online or by post.
For credit union loans, apply directly to the credit union.
For a loan on benefits from a specialist broker, apply online. They’ll carry out a soft credit search (which won’t damage your credit score) so they can tell you which lenders are likely to lend and on what terms. You then apply directly to the lender you prefer.
There are some lenders that specialise in offering loans for people on benefits and who have bad credit. But the loan amounts will be small and the interest rates high.
Before applying for a loan, consider the alternatives:
Check your benefits. Use an online benefits calculator like the one on the Turn2us website to look for extra benefits you could claim.
Check for grants. Charities, local authorities and hardship funds provide grants. You won’t have to repay these so they’re a better option than borrowing.
Ask family or friends for help. Make sure you come to an agreement about paying the money back (and put it in writing).
Contact your local council. There are welfare and assistance funds you can apply to.
Free up spare cash. If you can, sell something you own or cut back on costs.
Take control of your debts. Avoid borrowing to pay overdue bills. Instead, talk to your creditors to agree a repayment plan or get advice from a debt charity.
Loans on benefits come with different terms usually ranging from one month to five years. Typically, the less you borrow, the shorter the term.
To compare loans, check the following:
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