Rebecca Goodman
Sam Bromley
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Getting a loan when you’re on benefits might seem unlikely, yet there are various ways to borrow money while receiving state support.
What are advertised as benefits loans are one option, but they need to be understood and require careful thought before you take one out.
In most instances, alternatives such as the interest-free loans available through the government to people claiming benefits are worth exploring first.
Read on to learn more about loans for people on benefits and the options you might want to consider.
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Can I get a loan on benefits?
It is possible to get a loan if you receive benefits but if you do so from a lender, there will be fewer options available and it will almost certainly cost you more than if you were able to take out a more traditional personal loan. You might face a similar situation if trying to get a mortgage on benefits too.
When searching for loans for people on benefits, you will notice that they are usually only available from specialist lenders rather than the more familiar high street banks and lenders. Whether you can afford to repay the money that you wish to borrow will be important in determining if you can get a loan. This might prove difficult if your income is predominantly or entirely reliant on benefits, and is the main reason why interest rates on loans for people on benefits are usually so high.
» MORE: Can I get car finance on benefits?
Benefits payments increased, but criteria tightened
Benefits and tax credits rose by 6.7% in April 2024, givinga single claimant over 25 years old an increase in their benefits from £368.74 to £393.45 and from £578.82 to £617.60 per month for joint claimants both aged 25 and over.
However, claimants who refuse to accept work or engage with the job centre for six months could have their claims closed.
What is the eligibility criteria for a benefits loan?
The standard criteria that tends to apply for other types of loan in the UK can be expected to apply to loans for people on benefits. Generally this includes:
- being aged 18 or over
- being a UK resident
- having a UK bank account
At the same time, you’ll need to prove to the lender that you can repay the loan. The criteria that is considered here will usually vary between lenders, which is why you might be rejected for a loan by one lender but accepted by another.
Usually, a lender will look at your credit score to try to assess your reliability as a borrower. But more importantly, lenders want to know that you have a regular income that can be used to pay back what you owe after you’ve covered your regular expenses.
For a standard personal loan this would usually come from employment but, with loans for people on benefits, lenders will consider certain benefits to be an income suitable for repaying a loan.
What benefits count as income?
The type of benefit you’re receiving can be important when a lender is deciding whether to approve you for a loan. Some of the benefits that are most often considered as acceptable for income purposes to qualify you for a benefits loan include:
- Disability Living Allowance (DLA)
- Personal Independence Payment (PIP)
- Universal Credit
- Working Tax Credit
- Employment and Support Allowance (ESA)
- Child Tax Credit
- Child Benefit
- Fostering Allowance
- Incapacity Benefit
- Industrial Injuries Disablement Benefit
Among these, lenders might view certain long-term benefits, such as DLA or PIP, as providing an income much closer to how a salary might work than shorter-term benefits. The benefits accepted as income will differ between lenders so it’s worth checking with the lender directly what they will accept as income.
Which benefits don’t usually count as income?
While different lenders are willing to consider different benefits as an eligible source of income, some benefits tend to be excluded by most. Generally these include:
- Jobseekers’ Allowance
- Income Support
- Housing Benefit
- Pension Credit
Getting these benefits won’t usually count against you when applying for a loan of this type, but they are unlikely to be sufficient on their own to qualify you for a loan.
Can I get a loan on Universal Credit?
Some lenders will be willing to count Universal Credit payments towards the income requirements for a loan on benefits and others won’t.
If you’re receiving Universal Credit and need a short-term loan to help cover certain essential expenses, you might want to consider an interest-free budgeting advance from the government instead.
» MORE: Budgeting loans and budgeting advances
Can I get a loan on PIP?
Personal Independence Payments (PIP), or payments through the scheme it is replacing – the Disability Living Allowance – are both benefits that could be counted as income and help you qualify for a loan on benefits.
As both are long-term benefits that provide a regular income, you might find that lenders are more ready to accept them as a source of income than if you were on other potentially shorter-term benefits.
How much can you borrow?
Loans for people on benefits are typically available for between £50 and £10,000. The amount that you’re allowed to borrow will depend on the size of loan your lender thinks you can afford to repay and your personal situation.
What loan terms are available?
Lenders offering loans on benefits typically offer a range of repayment terms. The shortest start at one month while the longest go up to 60 months. The longer terms might only be available when borrowing larger amounts.
How to apply for a loan on benefits
If you want to apply for a loan on benefits, you’ll generally do so through an online broker. The process of applying can vary slightly depending on the broker, but typically, to get started you’ll need to specify the amount you want to borrow, the term over which you wish to pay it back, and how you intend to use the loan.
You’ll also need to share personal details, including your income, benefits, employment status, and your typical outgoings. Generally, this will allow a broker to conduct a soft search of your credit history, which won’t affect your credit score, and to check if any lenders are willing to offer you a loan. If there is no mention of a soft search, be aware that a hard search might be made, which could affect your credit rating and will show on your credit report.
If it’s indicated you could be eligible for a loan, and you wish to proceed, you’ll need to complete the lender’s application form and give permission for a hard credit search to be conducted (if it hasn’t already).
Should these final checks mean you subsequently receive formal approval for a loan, you can then accept the offer. Depending on the time that this is completed, it’s possible you could receive the money into your account the same day or the next.
» MORE: Tips for applying for loans
Do I need a guarantor to get a loan on benefits?
Some lenders won’t need you to have a guarantor, while others will. A guarantor is usually a friend or relative who agrees to pay back what you owe to a lender if you don’t. A lender might be more likely to request you have a guarantor if you have bad credit.
Alternatives to loans for people on benefits
Careful thought is always required before taking out a loan for people on benefits, and it isn’t a borrowing option that will be suitable for all. Before applying for a benefits loan, you could consider the following alternatives first:
A budgeting loan or advance
These are interest-free loans from the government that you might be eligible for if you receive certain benefits and have an expense it is essential that you pay. You can apply for a budgeting loan if you receive either Income Support, Pension Credit, Income-based Jobseeker’s Allowance, or Income-related ESA, while a Budgeting advance might be available if you receive Universal Credit.
If you’re struggling financially while you wait for your first Universal Credit payment to come through, you might also be able to get an advance payment on this – called a Universal Credit advance.
» MORE: Budgeting loans and advances
A credit union loan
Members of a credit union could find it worth exploring the loans that these not-for-profit organisations offer. Credit union loan rates are capped at 42.6% APR – the equivalent of 3% a month – in England, Scotland and Wales, and 12.68% APR, or 1% a month, in Northern Ireland, which could be less than the interest rate you would pay on a loan for people on benefits.
» MORE: Credit union loans explained
Child benefit loan
If you receive child benefit, you might want to consider a child benefit loan, or family loan, from a credit union. In return for having your child benefit paid directly into a credit union account, you’re able to access a loan that could have a lower interest rate and be more affordable than other types of loan people can get on benefits.
» MORE: Learn about child benefit loans
Family and friends
Before you take out a loan, you could ask family or close friends if they’re able to help you out financially. This can often be one of the simplest and cheapest ways to borrow, although it’s important that all parties involved know the terms on which the loan is being made and how it will be repaid.
» MORE: Lending money to family and friends
Other benefits and help
Making sure you’re getting all the benefits and financial help you’re entitled to is a must.
This might be in the form of help with childcare costs or if you receive PIP, you could be eligible for additional money on top of what you already claim. This could be through a top-up, or premium, on other benefits such as Jobseeker’s Allowance, Housing Benefit, Income Support, Working Tax Credit, ESA or Pension Credit, or reduced council tax and road tax. You can find out more about the benefits you’re entitled to by checking with your local benefits adviser or using an online benefits calculator, such as this calculator from poverty charity turn2us.
» MORE: Loans for people on disability benefits
Getting advice if you’re on benefits and in debt
If you’re on benefits and struggling with debt or your financial situation generally, borrowing through a loan might not be the solution to your problems. In fact, it could make them worse. It’s always best to seek debt help in these situations rather than hope the problem will go away. You can get free debt help from charities such as:
- StepChange
- Citizens Advice
- National Debtline
These charities could help you apply for the ‘Breathing Space’ scheme if you live in England or Wales, which gives temporary protection from your creditors. In Scotland you can get similar protection from a scheme called the Debt Arrangement Scheme. Northern Ireland doesn’t currently offer an equivalent scheme.
» MORE: Debt charities and how they can help
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Dive even deeper
Loans for People on Disability Benefits
It can be possible to get a loan if you have a disability or long-term illness and are receiving disability benefits, but the interest rates you’re asked to pay might be high. It’s usually best to explore all the options available first.
Tim Leonard
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