How to get a loan when you’re on benefits
If you need money to pay for something, or you’re struggling to pay for living costs, you may be able to get an interest-free loan from the government.
It’s harder to get a loan if you’re receiving benefits but there are still options available. You don’t need to take out a loan from an expensive payday lender. There are many other organisations including credit unions and local councils, which provide loans for people on benefits.
Before taking one out, there are many things to consider and to watch out for. You’ll need to make sure you’re not getting ripped off and that you fully understand the costs involved, including charges for late or missed payments.
Here we explain what you need to know about loans for people on benefits.
Are you allowed to get a loan if you are on benefits?
Yes, you are. There’s no law to say that just because you receive benefits you can’t get a loan and you shouldn't be discriminated against for this reason.
However, whenever you apply for a loan, you’ll need to show that you can comfortably repay it. You’ll also need to have a regular income and a good credit score to get a loan from a high street bank. If you’re not able to do this, instead of going to a pricey short-term lender, there may be cheaper loans available from the government or your local credit union.
The loans available for people on benefits
If you’re receiving benefits, you’ll either be getting a single payment for universal credit, or you might be getting several payments under the older benefit system.
Whichever system you’re on, it is possible to apply for a budgeting loan or budgeting advance from the government. There is no interest charged on these loans and you only pay back what you borrow. The money is repaid from your benefit payments.
You might also be able to take out a loan from a credit union. They often provide specialist loans to those on low incomes and it’s well worth adding them to your list of options when deciding.
There are also lots of short-term lenders providing loans for people on benefits. These may look appealing but they are almost always very overpriced with big penalties if you don’t keep up with the repayments. Interest rates vary hugely but there are examples of providers charging an APR of 728.9% on a £200 loan borrowed over 10 days.
How to get a loan if you are living on benefits
To get a government loan, you’ll need to apply on the gov.co.uk website, at your local Jobcentre, or via the universal credit helpline.
Before you’re accepted, there are certain criteria you’ll need to meet to get a loan and your circumstances will be assessed to see if you can afford one.
What to consider before applying
If you can’t afford to pay back a loan, it would be unwise to take one out.
However, sometimes you need a short-term loan for unforeseen costs - such as a broken fridge or burst pipe. A budgeting loan or budgeting advance from the government is the cheapest option - as it won’t cost you anything - but it’s also worth looking at the following alternatives:
Make sure you’re getting the help you’re entitled to
There’s a huge range of help and support available if you’re struggling financially, especially from debt charities. To start with, make sure you’re receiving all the benefits you’re entitled to. The charity Turn2Us has a free benefit checker to get you started. There are also grants for those who need help, and a full list can be found on the Turn2Us website.
Talk to lenders to lower your interest payments
If you have debts to pay back and you’re not able to make the payments, lenders may be able to lower the interest on these, or your monthly payments. Contact them directly to ask or speak to an independent charity such as StepChange who can do this for you.
Can I get an advance payment of my benefits?
If your benefit payment is late, or you can’t wait five weeks until your first universal credit payment, it is possible to apply for an advance. If you’re accepted for the loan, the money is paid back from future benefit payments. You can apply through your benefits online account, on the universal credit helpline, or in your local Jobcentre.
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Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more