Budgeting Loans and Budgeting Advances: How They Work
If you’re claiming certain benefits but need help with covering an essential cost, you might be able to get a budgeting loan or budgeting advance from the Department for Work and Pensions. These interest-free loans are repaid by reducing the benefit payments that you receive going forward.
Budgeting loans and budgeting advances are interest-free loans from the Department for Work and Pensions (DWP) that you might be able to get if you are on a low income and receiving certain benefits.
You’ll need to pay these loans back, but both can offer an important alternative to the other types of loan borrowers in a similar situation might typically consider, such as a payday loan, as you won’t need to pay any interest.
Here’s how budgeting loans and budgeting advances work, including which you might be eligible for and how you can apply.
What is a budgeting loan?
A budgeting loan is a loan from the DWP that you can apply for if you receive certain means-tested benefits and need to cover an essential expense. Budgeting loans don’t charge interest and will typically be repaid through an automatic reduction in the amount of benefits you receive.
Who can get a budgeting loan?
You might be eligible for a budgeting loan if you’ve been in receipt of any of the following benefits for at least the last six months:
- Income support
- Pension credit
- Income-based jobseeker’s allowance
- Income-related employment and support allowance (ESA)
If you have recently switched to receiving pension credit from universal credit, the length of time you received universal credit can be counted towards the six-month period required to qualify for a budgeting loan.
Who isn’t eligible for a budgeting loan?
You won’t be able to get a budgeting loan if you’re currently receiving universal credit – it is a budgeting advance that you need to be looking at instead.
Note that you also won’t qualify for a budgeting loan or a budgeting advance, if you:
- already have budgeting or crisis loans on which you owe over £1,500 overall
- are participating in industrial strike action
- receive ‘new style’ ESA or jobseeker’s allowance, rather than ‘income-based’.
There are other options you might want to explore if you’re trying to get a loan while on disability benefits.
What can I get a budgeting loan for?
You can use a budgeting loan for a variety of reasons, but the main criteria is that the loan is needed to cover an unexpected or essential expense. This might include:
- clothes and shoes
- household equipment or furniture
- advance rent payments
- removal costs if you’re moving
- home improvements or maintenance
- travel in the UK
- costs of looking for or starting a new job
- maternity or funeral costs
- repaying hire purchase loans or personal loans taken for any of the reasons above
How much budgeting loan can I get?
Budgeting loan amounts are decided on a case-by-case basis, but subject to certain limits. The minimum budgeting loan amount you’re allowed to borrow is £100, while the maximum will depend on your household circumstances. You must specify how much you would like to borrow when you apply, in line with the following:
Exactly how much you’re allowed to borrow will also depend on whether you and your partner have savings above £1,000 (or £2,000 if you’re aged 63 or over). Having other budgeting loans or crisis loans that you’re still paying back to the Social Fund – a government scheme that helps those on low incomes meet certain expenses – can also affect how much you might be allowed. Your ability to pay the loan back will be taken into account too.
If you have children and claim child benefit, you might also want to consider a child benefit loan, which can also help with unexpected expenses.
How to apply for a budgeting loan
You can apply for a budgeting loan online or by post, but you’ll get a faster decision on your application if you apply online. To get a paper form, you can either call the Social Fund or download the form online and print it off.
If you live in Northern Ireland, there is a different form, phone number and postal address for applying.
The application form asks you to specify the budgeting loan amount you want and the reason you want it. There are also various questions about the benefits you receive, the money you regularly pay out and your savings.
How long does it take to get a budgeting loan?
You’ll get a decision on an online budgeting loan application within seven days if you chose to be contacted by email or text, or 21 days if you opted to receive the decision by post. If you posted your application, you’ll receive a decision letter back within 21 days.
If you decide to proceed, the money should appear in your account within seven days when you accept a budgeting loan decision online, or within 21 days of your postal acceptance being received. You can only accept online if you applied online.
How can I check the status of my budgeting loan?
If you have a query about how your application is progressing, you can call the Social Fund but only if 14 days have passed since you made an online application or 21 days have passed since you posted your application.
Can I challenge my budgeting loan decision?
You’re allowed to request that your budgeting loan decision is reconsidered if you were rejected for a loan or you’ve been accepted but at a different loan amount to what you were expecting.
You’ll need to write a letter explaining why you think the decision is wrong and send it to the address you’ll see on your decision letter. Your letter must be received no later than 28 days after the date of your decision letter.
If your challenge is unsuccessful, you have a further 28 days to ask the office of the Independent Case Examiner for a further review if you wish.
Paying back your budgeting loan
Budgeting loan repayments are deducted automatically from your benefit payments each week. Normally, you’ll be expected to repay the loan over a period of no more than two years.
Your budgeting loan decision will explain how much your repayments will be. The amount will be determined by looking at your income and what you can afford to repay. If you start to find it difficult to afford to pay back your loan, you should contact Jobcentre Plus or seek advice from your local jobcentre.
If you stop receiving benefits and haven’t cleared the loan, you’ll need to pay it back another way.
How often can I apply for a budgeting loan?
There is no limit to how many loans you’re able to have but every time you apply for a new budgeting loan, your circumstances will be assessed, including any outstanding loans you have and whether you’ll be able to pay the new loan back.
Each application is assessed on a case-by-case basis, and the amount you might be offered will be dependent on a number of factors including if you have any other budgeting loans or crisis loans you’re paying back. You won’t be able to get a further loan if you already owe £1,500 or more under other Social Fund loans in total.
Can I get a budgeting loan on universal credit?
You cannot get a budgeting loan if you receive universal credit, but can claim a budgeting advance instead. Budgeting advances are also interest-free loans that you might be able to get to help cover essential expenses, but are specifically for those who claim universal credit.
What is a budgeting advance?
A budgeting advance is an interest-free loan you can apply for if you’re claiming universal credit and need a way to cover an unexpected or essential cost. Budgeting advances work in a similar way to budgeting loans, but with some slightly different rules.
What you borrow through a budgeting advance must be repaid within 12 months and happens through a reduction in your universal credit payments.
A budgeting advance should not be confused with a universal credit advance, which is where new universal credit claimants who are experiencing financial hardship can apply for advance payment of their benefit entitlement.
What can I get a budgeting advance for?
You might be able to get a budgeting advance to help pay for essential things, such as:
- emergency household expenses, such as replacing a broken fridge
- costs involved with getting or remaining in a job
- a funeral
Can I get a budgeting advance?
To be eligible for a budgeting advance, you need to meet all of the following requirements:
- You have been receiving universal credit, income support, state pension credit, income-related ESA, or income-related jobseeker’s allowance for at least six months (unless the budgeting advance would be used to help you get a new job or keep your current job).
- You have earned less than £2,600 in the previous six months, or £3,600 for couples.
- You have paid off any other budgeting advances that you might have had.
How much budgeting advance can I get?
The budgeting advance amount borrowers can get is decided case by case, but will be subject to certain limits. The minimum budgeting advance you can take is £100, while the maximum budgeting advance available will depend on your household situation.
The highest budgeting advance you might be allowed is £348 if you’re single, or £464 if you’re part of a couple but have no children. If you are a one- or two-parent family with children, the maximum budgeting advance you might be able to get is £812.
Your jobcentre work coach will help decide how much you’re allowed to borrow.
The budgeting advance amount you’re awarded will depend on an assessment of your ability to pay the loan back and the level of savings that you might have. The amount you’re offered will reduce by £1 for every £1 you have above £1,000 in savings.
How to apply for a budgeting advance
There are three ways in which you can apply for a budgeting advance:
- at your local jobcentre
- by updating your universal credit account journal
- by calling the universal credit helpline
You’ll need to discuss your application with your work coach and should be prepared to share details of your income, outgoings and savings so that they can assess whether you’re eligible and the amount you might be allowed to borrow. You will usually find out whether your application has been successful on the same day as you apply.
Can you apply for a budgeting advance online?
Applying for a budgeting advance online is only possible through your universal credit account journal. However, you won’t be able to complete the entire process online, as you’ll still need to have a discussion with your work coach before you’re able to proceed.
How long does a budgeting advance take?
When you talk through your application with your work coach, you’ll usually get a decision as to whether you can get a budgeting advance, and for how much, on the same day. Generally, you can then expect the money to arrive in your account within three days.
Paying back a budgeting advance
Budgeting advances must be repaid within 12 months of the loan being taken. You’ll repay what you owe through an automatic reduction in your monthly universal credit payments. The first deduction is made from the first payment you receive after taking the budgeting advance.
If you switch to another benefit while you’re still making repayments, the payment you receive will usually be reduced by the relevant amount until you’ve paid your advance back.
If you stop receiving benefits altogether, the DWP Debt Management Contact Centre will write to you detailing how much you owe, so you can then let them know how you’ll pay off the advance. If you don’t, the DWP could ask your employer to make automatic deductions from your earnings or arrange for a debt collection agency to recover the money.
How many budgeting advances can I get?
You’re only allowed one budgeting advance at any time and need to have paid off any previous advances before you’re eligible to apply for another.
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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
Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more