Can I Get a Loan While on Benefits?
While it is possible to get a loan if you are on benefits, finding a provider who will consider your application can be tricky.
Most high street banks won’t grant credit to people who don’t bank a regular paycheck, meaning you may have to look elsewhere.
There are a small number of government schemes which could help you borrow the money you need, and a whole range of specialist providers who are willing to lend to people on benefits.
Because these lenders agree to overlook traditional income requirements, they often charge high-interest rates and normally ask for the money to be paid back over a short amount of time.
Continue reading and get all the details and the pros and cons.
I’m on Benefits: What Kind of Loans Can I Get?
Borrowing From Loan Companies
Many high street lenders don’t offer loans to people on benefits or may only do so in very rare circumstances (for example, if you have an exceptionally good credit score, have evidence of alternative income and a guarantor).
However, that doesn’t mean that you can’t get a loan; there are plenty of specialist providers willing to lend money to people on benefits. In contrast to high street banks, these lenders tend only to charge high rates of interest.
If you are able to find a guarantor– someone with a higher, regular income who is willing to vouch for your ability to pay- then it may be possible to secure a better interest rate with some lenders.
Benefits loans are almost always unsecured, which means there is no requirement to offer collateral in the form of your possessions when you take out the loan. However, that does not make this borrowing risk-free.
As with all debts, failing to keep up with repayments could land you in trouble. If you default on your loan, the lender could sell on your debt to a collection agency or file a complaint in court.
Borrowing From the Government
If you have received Income Support, Jobseekers Allowance, Employment and Support Allowance or Pension Credits for the last six months, you can apply for a budgeting loan from the government of up to £821. This is an interest-free loan which is repaid using deductions from your benefits. You can spend the money on a range of expenses, from clothing and footwear to fridges and travel around the UK.
People with a disability who plan to borrow money in order to make their home accessible may be eligible for a Disabled Facilities Grant. This is a means-tested grant available from the local government and does not need to be repaid.
Grants are also available for people who need to borrow money because their benefits are late. The UK’s welfare assistance scheme offers small emergency deposits to help cover the cost of essentials, such as food and household bills.
I’m on Benefits: Will I Need to Prove My Income?
Any responsible lender will need assurance that you can afford to pay back the money you borrow.
For this reason, you should expect to provide proof of any income you have. This could include bank statements, letters from your benefits agency, or bank statements from your guarantor if you are using one.
Some lenders may have a minimum income requirement (usually around £300/month) you will need to meet before they agree to loan you any money.
There are also certain types of benefits which may not be accepted by all lenders when considering your income. For example, some providers don’t count Child Support when calculating your income.
We have released a new article about ‘On Benefits And Need A Loan‘ which will answer some of the new questions or readers have asked us.
I’m on Benefits: How Much Can I Borrow?
Most Common Causes for Financial Struggle at the End of the Month
|Cost of Food||55%|
|Cost of public transport||35%|
|Non-essentials, going out||27%|
|Cuts to benefits||8%|
|Debt Management plan||5%|
|Short term loan repayments||5%|
How Do I Pay Back My Loan?
The lenders may ask to set up a ‘recurring payment’ on the bank account your benefits are paid into. Depending on the terms of your loan, this could be weekly, biweekly or monthly. The recurring payment will automatically deduct the money you owe from your account at regular intervals and transfer it to the lender.
Although it is possible to cancel the payment without defaulting on your loan, you risk being late with your payments by doing so. Late payment usually entails penalty fines.
Most payment plans are straightforward; they simply deduct the same amount from your account at regular intervals for the lifetime of the loan. However, on occasion, you could be offered a plan which is interest-only or a balloon payment plan.
In such cases, you would make smaller regular payments throughout the lifetime of the loan (normally these pay off the interest) and be left with a lump sum that still needs to be paid off at the end of the term.
How Much Does It Cost?
This can make borrowing very expensive and if you don’t stick to repayments, could result in you failing to pay back the loan on time.
If this happens, your debt could be sold to a debt collection agency, and you may find it difficult to borrow in future- even with non-traditional lenders.
In Short: Pros and Cons
As with everything, there are pros and cons to taking out a loan while you’re on benefits. If you’re regularly coming up short and struggling to pay for essentials, you might find that speaking to a debt counsellor is a better long-term solution for you, as a loan will only add to your monthly outgoings.
However, if you know you can afford repayments, a loan could be the perfect solution to help you meet one-off and unplanned expenses:
|Allow you to access credit when few other options are available||Very interest rates and fees|
|Normally not secured against property||Repayments could make your financial burden even heavier|
|Could help you improve your credit score if you pay back on time and make borrowing easier in the future||If you fall behind on repayments, you could damage your credit, making it hard to borrow in future, or your relationship with your guarantor.|
How Can Flexy Loans Help?
Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.
They have already helped thousands of people get loans already, and they can do the same for you.
Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you. All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.
To apply and see what loan is available to you, click on the below and answer the question