Borrowing money on a low income can be a tricky and costly process. Guarantor loans are just one way that people on benefits can access better interest rates that make borrowing less expensive. But what happens if you don’t have a guarantor?
There are plenty of reasons why guarantors simply aren’t an option for everyone. But try not to worry – if you’re on benefits and find yourself needing to borrow some cash, there are other options out there. This guide explores what to do if you’re on benefits and need a loan but don’t have a guarantor.
Can I Get a Loan While I’m on Benefits?
The short answer is yes. The longer answer is that while some lenders will take benefits or less traditional forms of income such as student loans into affordability considerations, it will be much more difficult for you to find a lender – especially one offering good interest rates.
Is It Hard To Get a Loan on Benefits?
Loans are given on the condition that the borrower will pay the money back, with interest, in full and on time. The simpler and more risk-free this transaction, the more likely it is that a bank or other lender will want to enter into the deal. That’s why lenders like regular income and excellent credit scores. They’ll offer more attractive interest rates to these customers.
On low income or benefits, a lender may think twice about lending money as there is more risk involved for them. This can make borrowing more difficult and expensive as there is a more limited choice in lenders and the types of loan they provide. Also, if the lender thinks you won’t be able to afford the repayments, they will reject your application.
Can I Get a Loan if I’m Unemployed?
Yes, you can still get a loan if you’re unemployed. Lenders consider all kinds of criteria when checking to see if you’re eligible to borrow, but you do need to prove that you can make the monthly repayments on time. To check this, lenders look at things like:
- Your income. You still need to show you have regular money coming in, whether that’s from benefits, student loans, child maintenance or elsewhere.
- Your credit history. Lenders will want to check if you’ve borrowed money in the past and if you were able to keep up with the required payments at the time.
- Your credit score. This is a snapshot of your financial situation and having a good credit score will definitely help when applying for a loan on benefits.
Your chances of having a loan application accepted may be higher if you have someone to act as a guarantor.
Can I Get a Loan Without a Guarantor?
Lenders offer more attractive rates for guarantor loans as it offers them an additional avenue to explore if, for whatever reason, you stop being able to meet the agreed repayment plan.
Your guarantor is usually a trusted friend or family member (with regular income or assets of their own) who legally agrees to pay back the loan if you can’t.
However, finding someone willing and able to co-sign a loan isn’t always possible. Lenders know this, and there are a number of loan options available that don’t require a guarantor.
No-Guarantor Borrowing Options Available on Benefits
Budgeting Loans From the Government
You may be eligible for a budgeting loan or budgeting advance from the government if you’ve been receiving benefits for six months or longer. The money from this loan can be used on a range of expenses, including furnishing your home, clothes or footwear, rent advances, home maintenance, costs involved with getting a new job and repaying off other loans. Repayments are interest-free and are taken directly from your benefits payment.
High-Interest Personal Loans
Some lenders accept benefits as proof of regular income and offer regular personal loans without the need for a guarantor if you meet affordability criteria. However, these often come at the price of higher than average interest rates or inflexible repayment terms. Lenders may also limit their own risk exposure by restricting the amount of money you can borrow.
A secured loan is provided on the condition that you put forward a valuable asset such as your car or house as security. This can encourage a lender to offer better interest rates. However, it does come with more risk for you.
A secured loan such as a logbook loan or homeowner loan can be great if you need to borrow a larger sum of money, but keep in mind the risk of repossession. If you can’t make the agreed repayments, you risk losing your car or home. The lender can legally repossess the security asset to get some of their money back.
Payday Loans or Fast Loans
Lenders that offer payday loans, quick loans or promise to lend you money without a credit check are more likely to accept people on benefits or those with bad credit. The application process is quick, and the money can be in your account the same day – often within hours.
However, payday loans can be very dangerous. They’re fast access but short-term and very high-interest. You don’t have long to pay the loan back, and you will likely be hit with hefty penalties and late fees if you don’t. This makes it very easy to fall into a cycle of borrowing, and debt can quickly mount. Payday loans are rarely recommended if you’re on benefits as you could very easily end up in a much worse financial situation than when you started.
Peer-to-Peer Lending Platforms
A peer-to-peer lending platform, usually a website, pairs up someone looking to borrow money with someone willing to lend it. Unlike traditional loans, there’s no bank involved which means you might be able to access more competitive rates. Even though a low income or poor credit score are still likely to attract higher interest rates, borrowing is still likely to be cheaper and more flexible than options like fast loans or high street loans.
Is It More Expensive To Take Out a Loan Without a Guarantor?
Unfortunately, it is often more expensive to take out a loan without a guarantor if the bulk of your income is from benefits. This comes down to risk again: with less income, your affordability drops as you’re only able to make smaller monthly repayments. Having a less-than-perfect credit score too also contributes to worse interest rates being offered.
How To Get a Loan Without a Guarantor
If you don’t have a guarantor, it’s crucial that you can meet certain loan eligibility criteria by yourself. Basic qualifications for taking out a loan in the UK are:
- Proof of age. You’ll need to prove you’re over 18 years of age.
- Proof of residence. You’ll need to prove you have a UK address.
- UK bank account. You’ll need to provide evidence that you have a bank account.
If you pass these, the lender will then take a look into your current financial situation and credit history to decide whether to lend you money. This involves looking at things like:
- Evidence of regular income. Whether benefits, wages or something else.
- Details of monthly expenses. Lenders need to check you can afford repayments.
- Debt-to-income ratio. The lower the amount of your income you spend on paying debt, the better your affordability looks to a lender. A low rate is better here.
- Credit history. A good credit history shows the lender that you have a history of making credit payments in full and on time. A high score is better here.
It’s at this point that a lender will decide whether or not to approve your loan application. If there are questions over your affordability, the lender may increase the interest rate you would have to pay or reject your application altogether.
How Much Can I Borrow on Benefits?
There’s no clear answer here. In fact, it’s often more helpful to think about how much you actually need to borrow and, of course, what you can afford to pay back. Lenders may offer better interest rates the more you borrow from them, but this will cost you more in the long run. Always borrow as little as you can and never more than you need.
How Do I Prove I Can Afford a Loan on Benefits?
Draw Up an Accurate Budget
Before you apply for any form of borrowing, you need to have a clear idea of the amount of money you have coming in and out. In most cases, this is a case of creating an accurate budget that tracks your ingoings and outgoings and working backwards from there.
Check You’re Getting All the Support You’re Entitled To
It always pays to check that you’re getting all of the support you’re entitled to. You can use an independent benefits calculator such as EntitledTo to check what you might be able to claim. Once you enter your details, you will receive an estimate of your entitlement to benefits, tax credits and Universal Credit and further information on how to apply.
Look for Ways To Boost Income or Save on Expenses
When it comes to loan affordability, the bigger the gap between your living expenses and your income, the better. To cut down on expenses. you may want to consider things like:
- Switching to the best energy deal you can find
- Downgrading expensive TV, internet or phone contracts
- Temporarily pausing non-essential subscriptions
- Switching to a more budget-friendly supermarket
Small lifestyle changes all add up and can boost the amount of disposable income you have.
Improve Your Credit Score
You can boost your chances of getting a loan approved by improving your credit score. There are several ways to improve your credit score:
- Check the main credit reference agencies Experian, TransUnion and Equifax have your details noted correctly.
- Add your name to the electoral register with your local council so lenders can check your details match their records.
- Make credit card, loan and bill payments in full and on time wherever you can.
- Keep the amount you borrow to a minimum to reduce your debts.
This is unlikely to be an overnight solution, but over time may get you access to better borrowing options. Loans for bad credit are notoriously high interest and expensive.
What Else Should I Consider Before I Take Out a Loan?
Once you have a clear idea of what you’ve got coming in and going out, you can factor in any extra funds that could be used to cover loan repayments. You then need to think about how much you need to borrow and how long for. This is a bit of a balancing act.
A short-term loan will be cheaper overall, but your monthly repayments will be much higher. Unexpected car, home or family expenses could make cash very tight for the rest of the month or even put you behind on repayments.
Borrowing over a longer period of time will reduce monthly payments, and you may be offered a better interest rate. However, the trade-off here is that you pay the loan back for longer, meaning it’s more expensive overall, and you spend more time in debt to the lender. Always do your research and consider all of these factors when weighing up loan options.
Will Taking Out a Loan Affect My Universal Credit Payments?
Potentially. Universal Credit is means-tested, meaning that how much you get depends on the amount of income and savings you have. Some larger loan payouts could therefore affect your eligibility if they count towards your capital limit. If the loan takes your savings over the £6000 limit, your Universal Credit payments would reduce.
Is Taking Out a Loan the Right Option for Me?
Taking out a loan isn’t a decision to take lightly, especially if you don’t have a guarantor to fall back on if things go south. If you’re relying on loans or credit cards to cover your regular expenses, then borrowing even more may not solve the problem.
Charities such as the Money Advice Service and StepChange offer free and impartial debt advice. Services such as Citizens Advice may be able to help you create a budget, temporarily reduce your bills and get your finances under control if that’s what you need. There is support available if you’re stuck in a cycle of debt.
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.
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