How to get a loan if you are receiving disability benefits

Disability benefits are classed as income and like salary, so you will need to show a steady history and forthcoming payments, along with any other income you receive.

Rebecca Goodman Last updated on 30 June 2021.
How to get a loan if you are receiving disability benefits

It’s possible to get a loan when you’re receiving disability benefits. Your credit history and ability to make loan repayments are what matters to a lender and receiving benefits should not make you different from any other loan applicant.

Your benefits can count as a source of income and you are entitled to apply for a loan. The fact that you’re on disability shouldn’t affect the decision of the lender. The lender will be looking for regular, stable income and affordability.

This is the case no matter what disability you have, including whether you have physical or mental health problems.

The types of loans available for people who are on disability

If you are working and have a regular income, you should be able to apply for a range of different loans. However, the cheapest loans will only be offered to people with an excellent credit score.

There won’t be as many options if you have a poor credit score, you’re on a low income, you’re receiving benefits that make up a majority of your income, or if you’re unemployed.

A lender can’t reject you because you’re receiving disability benefits, but it’s unlikely to approve a loan if it thinks you won’t be able to repay it comfortably, or if the benefit and other income are not stable.

The most expensive loans to take out are from payday lenders. They are often short-term loans, which you can take out for as little as one to three months, but with very high interest rates, sometimes as much as 1243.3% APR.

Expensive short-term loans are not the only option and you should be able to find an alternative if you need some money to tide you over.

» MORE: Loan options for people on benefits

How to get a loan if you are receiving disability benefits

Many people receiving disability benefits have good or excellent credit scores and can meet typical lender income requirements. However, if your credit score and income make it unlikely that you’ll be able to get a loan from a high street bank, you still have options. There are other ways to borrow or alleviate the stress on your finances including:

Borrow from friends and family

This won’t be an option for everyone and isn’t a decision to enter into lightly but if there is a way to borrow from a friend or family member, this could be a good short-term solution. Remember to get everything in writing and to be completely open and honest before you agree to anything.

» MORE: Pros and cons of loans from friends and family

Loans from a credit union

Credit unions are a good alternative to traditional lenders if you’re on a low income. They specialise in helping those on low incomes or benefits and your local one should be able to give you help and advice on the best way to manage your money and apply for a low-cost loan if needed.

Apply for all the help you’re entitled to

There’s a huge range of benefits available - including grants to help if you need to modify your home - so always check you’re claiming what’s available to you. The Turn2Us benefit checker is a good place to start.

If you already have debts, ask lenders to reduce your repayments

For anyone struggling to pay household bills, essentials, or debt repayments, taking on an extra loan may not be the best idea. Instead, talk to your lenders and ask them to lower your repayments to an amount you can afford. There are a number of free and independent debt charities that can do this for you.

Cut back if you can

Make a strict budget and cut back wherever you can as this could provide you with some extra cash. This includes everything from checking all your household bills are on the cheapest tariffs available to getting rid of any luxuries until you’re back on track.

» MORE: How to apply for a budgeting loan from the government

What to consider before applying

With any debt you take on, it’s important to look at the following factors before you make an application.

  • Can you afford it?

If you won’t be able to make the repayments, you shouldn't take it out because there will be interest charges and fees if you miss payments or are late with them.

  • Do you need it?

Sometimes there is no other option and if you need cash, and can repay it, an affordable loan can be a good idea

  • Is there a better option?

Make a list of the pros and cons of taking on a debt, all the possible options available to you, and how much each will cost you.

It is also worth remembering that if you have applied for Universal Credit and are waiting for your first payment to come through, it is possible to apply for an advance if you are struggling.

» COMPARE: Personal loans

Source: Getty Images

About the author:

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

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