What to know about budgeting loans and budgeting advances
Budgeting loans and advances are available if you’re receiving benefits and in need of some extra cash.
If you’re receiving certain benefits and need a loan, it might be possible to apply for a low-cost budgeting loan or a budgeting advance.
These loans work in slightly different ways and are available to those on a low income. Although they still need to be paid back, they’re far cheaper than the alternatives available from payday lenders as you won’t pay any interest on the money.
Here we look at what you need to know about both types of loan.
What is a budgeting loan and how does it work?
A budgeting loan is an interest-free personal loan from the government social fund that is available for people on benefits. You can use a budgeting loan for a variety of reasons when something unexpected and essential comes up such as:
- Furniture or household items
- Clothes and shoes
- Advance rent payments
- Moving costs, home improvements or maintenance
- UK travel
- Costs of starting a new job
- Maternity or funeral expenses
- Repaying hire purchase loans or loans taken for any of the reasons listed here
You won’t be charged interest on the loan and you only have to pay back what you borrow, which will be taken from your benefit payments.
To apply you’ll need to have been receiving one of the following four benefits for at least six months: income support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, or Pension Credit.
You can’t apply if you’re receiving universal credit, you’re involved in industrial action, or you already owe £1,500 or more in crisis loans (which aren’t available to apply for anymore) or budgeting loans.
What is a budgeting advance and how does it work?
A budgeting advance is a type of loan for those already receiving universal credit. It can be used to pay for any of the following: emergency home repairs, staying in employment, seeking work, and funeral expenses.
You will need to have been getting universal credit for at least six months to apply, unless the money is needed to either help you find work or to help you keep your current job.
You can only apply if you have earned less than £2,600 if you’re single, or £3,600 as a couple, in the past six months. You can’t take a new one out if you’re already paying off another advance.
There’s also a universal credit advance you can apply for which is a different type of loan. This loan is for those who are struggling to pay for things and can’t wait the five weeks until they receive their first universal credit payment.
How do you apply for a budgeting loan or advance and how much can you borrow?
As these two loans are slightly different, you apply for them in different ways.
Budgeting loans: You can apply online at the gov.co.uk website, by post if you can download and post a form back, or you can call the Social Fund on 0800 169 0140 and ask them to send you a printed form which you’ll need to post back.
Budgeting advances: For a budgeting advance, you’ll need to contact your local Jobcentre Plus work coach to apply.
For both loans, you will be able to apply for between £100 and £812 depending on your circumstances. If you’re single you could get up to £348, if you have a partner up to £464, and if you or your partner claim Child Benefit up to £812.
The amount you’re given depends on if you can pay the money back, if you have savings of more than £1,000 (or £2,000 if you or your partner are aged 63 or over), or if you’re already paying back a budgeting or crisis loan.
When do you have to pay the money back?
If you’re approved for either an advance or a loan, you’ll be told when it needs to be repaid.
Budgeting loans: These are paid back from your benefit payments and the amount will be based on your income and what you can afford to repay. You’ll usually need to pay back the entire loan within two years and if you stop receiving benefits and haven’t cleared the loan, you’ll need to pay it back another way.
Budgeting advances: Repayments for the advance are taken from your universal credit payments and need to be repaid within two years if you took the loan out after 12 April 2021 (or a year if you took it out before that date). The first repayment will be taken on the day you get your next universal credit payment after receiving the loan.
If you stop receiving the benefit you’ll be contacted telling you how much money needs to be paid back and if you can’t do this, you’ll need to speak to the DWP Debt Management Contact Centre to set up a repayment plan.
How often can I apply for a budgeting loan or an advance?
There’s no limit to how many loans you’re able to have but every time you apply for a new budgeting loan or advance, your circumstances will be assessed including any outstanding loans you have and if you’ll be able to pay the new loan back.
They are assessed on a case-by-case basis and the amount of money you’re given is dependent on a number of things including if you have any other budgeting loans or advances you’re paying back.
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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