Rebecca Goodman
Tim Leonard
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Getting a loan if you’re receiving disability benefits might seem daunting yet there are different ways of borrowing money if you have a disability or long-term health condition.
What you might see referred to as disability loans or benefits loans could be an option, but should never be entered into lightly.
In the first instance, it’s usually best to explore government benefits and the loan options from credit unions.
Read on to find out more about loans for people with disabilities and long-term illnesses, and the considerations you need to make.
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Can I get a loan when I receive disability benefits?
It might be possible to get a loan when you’re receiving disability benefits, but if this is your only or main income it’s likely you’ll have fewer lenders from which to choose and a personal loan from a high street lender may be out of reach. You could encounter a similar scenario if you also want to get a mortgage on benefits.
The lenders that tend to appear when you search for loans for ‘people on disability benefits’ are usually less well-known names and the interest rates they charge are typically high. This will almost certainly be true if you’re looking for loans for people on disability with bad credit.
Carefully consider the interest rate you’ll be charged and work out if your finances will allow you to make the necessary repayments. If the numbers don’t work out, don’t take the loan.
How to get a loan if you are on disability benefits
Your credit history and ability to make loan repayments are the key considerations when a lender is deciding whether to offer you a loan. A lender can’t reject your application because you’re receiving disability benefits, but will want to work out if the income you have left over after you’ve paid your usual outgoings is sufficient to allow you to make the repayments of the loan.
When you apply for a personal loan, lenders will typically look for income from employment. However, for loans for people with disabilities, the disability benefits you receive might count as a source of income too.
Which disability benefits could be counted as income?
Different lenders could be willing to count different benefits as income, but some tend to be more commonly accepted than others. These often include:
- Personal Independence Payment (PIP)
- Disability Living Allowance
- Universal Credit
- Employment and Support Allowance (ESA)
- Incapacity Benefit
- Industrial Injuries Disablement Benefit
If you receive other benefits such as working tax credit, child tax credit, child benefit or fostering allowance, it’s possible these could be taken into account too.
» MORE: Loans for people on benefits
Can I get a loan while on PIP?
If you receive Personal Independence Payments or its predecessor, Disability Living Allowance, both are benefits that lenders might be more willing to count as income when you apply for a loan on benefits.
What can work in your favour is that these are often considered to be long-term disability benefits, meaning that some lenders will view them as a more reliable source of regular income, similar to receiving a salary.
Personal loans for people on disability benefits
Getting a personal loan from a high street lender could prove challenging if disability benefits are your main source of income. If you are also working while in receipt of benefits or have another reliable source of regular income, this could help your cause, as might having a good credit score.
However, there won’t be as many options if you’re on a low income, benefits make up the majority of your income, you’re unemployed or you have a bad credit score.
Alternative options for those on disability benefits
Loans from a credit union
Approaching a credit union can be a good alternative to a traditional lender if you’re already a member or are willing to join. In England, Scotland and Wales, credit unions cannot charge more than 42.6% APR – the equivalent of 3% a month – for a loan, which is likely to be less than the interest rate you would be charged on a loan if you are on disability benefits. In Northern Ireland, the cap is even lower at 12.68% APR, or 1% a month.
» MORE: Credit union loans explained
Loans for people on Universal Credit
If you receive Universal Credit and need a loan for the short term to help pay for certain expenses that are considered essential, you might be able to get a budgeting advance. This is a 12-month interest-free loan from the government that you’ll repay through automatic reductions in your future Universal Credit payments.
If you receive income-related ESA or Income Support, you might qualify for a budgeting loan, which works in a similar way.
» MORE: Budgeting loans and budgeting advances
Borrow from friends and family
This won’t be an option for everyone and shouldn’t be entered into lightly but if there is a way to borrow from a friend or family member, this could be a short-term solution worth considering. Crucially, you should note the details of the arrangement in writing and be open and honest with each other before you reach a final agreement.
» MORE: Pros and cons of lending money to friends and family
Payday loans for people who are disabled
Taking a payday loan is rarely a good option. Interest rates are almost always extremely high and debt problems can escalate quickly if you miss repayments.
Also be aware that if you apply for credit in the future, some lenders could view your previous use of a payday lender negatively, even if you paid it back on time and your credit score was unharmed.
Loan sharks
Borrowing from a loan shark – an individual or organisation that lends illegally – is never a good option.
Loan sharks might present themselves as a legitimate lender but in reality won’t have the necessary authorisation from the Financial Conduct Authority to lend. Alternatively, they could be an individual who gains your trust but becomes much less amicable and potentially threatening, once you’ve borrowed money from them.
Apply for all the financial help you’re entitled to
Claiming all the financial assistance you’re entitled to is essential. For instance, you might qualify for help with childcare costs if you’re a parent, or be eligible for extra payments from other benefits in addition to what you already receive if you’re on PIP.
There is also the Disabled Facilities Grant which could help if you need to modify your home, and Support for Mortgage Interest loans, designed to help with interest payments on your mortgage and loans you take out to adapt your home to your needs.
Seek advice if you already have debts
If you’re 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 or those you owe money to and see if they’re willing to lower your repayments to an amount you can afford or come to another arrangement. It’s always best to seek debt help rather than ignore the problem in the hope it will disappear.
» MORE: Debt charities and how they can help
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Dive even deeper
Budgeting Loans and Budgeting Advances Explained
If you’re claiming certain benefits but need help with covering an essential cost, you might be eligible for either a budgeting loan or a budgeting advance from the Department for Work and Pensions. Both are interest-free loans that are repaid through a reduction in the benefit payments that you receive going forward.
Lending Money to Friends and Family: Is It a Good Idea?
Loans between friends and family can be a quick and easy way to access money, but they aren’t without their complications. If things go wrong, your relationship could suffer, so find out what you can do to try to make lending to friends and family a success.
Rhiannon Philps
Loans for People on Benefits
It’s possible to get a loan while on benefits, but you could pay higher interest rates than on other types of loan. This makes it important to start considering other options from the government and credit unions.
Sam Bromley