Income from benefits is often considered in the same light as employment income when it comes to loan applications. There is an argument to suggest that benefit income, guaranteed by the government, is even more secure in the short-term.
As a consequence, there may be a number of different loan options available if you are on benefits.
If you take a step back and look at the situation from a distance, a loan is approved or rejected on the basis of a simple affordability calculation.
If you have regular income and you can afford the repayments, whether supported by benefits, employment or investment income, there is every chance your loan will be approved.
Could I Secure a High Street Loan?
While there are numerous lenders who will accommodate those on benefits, unfortunately for many the traditional personal loan from high street lenders may not be available.
In many ways, this simply comes down to the risk/reward ratio with traditional personal loans attracting much lower interest rates than payday/quick loans.
Can I Use a Guarantor With My Loan Application?
To revisit the subject of high street loans, if you have a guarantor and in theory, your benefit income would cover your monthly expenses and loan repayments, there may be scope for approval.
The idea is simple; in the event that you were to default then the financial liability would be transferred to the guarantor who will take up your payments.
In practice, the use of a guarantor with any loan application will strengthen your case because it reduces the risk/reward ratio.
What Loans Are Available for Those on Benefits?
The payday/quick loan sector is highly focused on those with short-term cash flow difficulties and very often bad credit ratings. These companies are regulated by the FCA, and while the average loan is £100 repaid over 30 days, the term can be extended to 12 months on significantly larger amounts borrowed.
There may also be options with regards to universal credit loans which may involve the early payment of future benefits or even non-repayable financial assistance.
Can I Make a Joint Payday Loan Application?
The simple answer is unlikely. The payday loan sector is focused on a very efficient system with the vast majority of applications completed online.
Therefore, the mechanics of making a joint application are extremely difficult, which is why many short-term lenders only accommodate single applications.
When it comes to personal loans via more traditional routes such as high-street banks, these aren’t always, so time-critical and therefore joint applications are more common.
What Interest Rate Should I Expect to Pay?
The majority of lending for those on benefits will come via the payday/quick loan market, which does attract higher than average interest rates.
When looking at relatively short-term finance, the annualised rate of a 30-day loan can be a little misleading as it often involves relatively modest repayments in pounds sterling.
The interest rate on payday/quick loans tends to start at around 50% and, depending upon your credit history, could be as high as 1500%.
Is the Same Day Loan Market Regulated?
While the same day loan market has attracted more than its fair share of controversy in the past, it is more strictly regulated today as a consequence of regulations approved in 2014. This has placed a cap on the maximum interest rate, default fees and the overall cost of a loan.
While there is no getting away from the fact that applicants with limited income, limited assets and perhaps a bad credit history will pay a higher than the normal interest rate, they are still afforded the same level of protection as those taking out personal loans via high street banks.
What Are the Criteria for a Fast Loan Application?
In order to be considered for a payday/quick loan, the criteria are as follows:-
- Applicant must be over 18
- They must have a UK bank account
- Evidence of monthly income
- Details of monthly expenses
- Confirmation of UK citizenship
- Have debit card details to hand
What if I Struggle With Repayments?
The majority of loan options available to those on benefits tend to be relatively short-term with a maximum of 12 months. While repayment difficulties on short-term 30-day loans are unusual, it is not uncommon to experience unexpected expenses over a 12 month loan period.
If at any time you expect difficulties are covering repayments, it is advisable to approach your lender. It is in their best interest to accommodate any short-term cash flow difficulties in order to secure their long term returns.
Any repayment default would incur additional charges and likely be noted on your credit file.
Do I Need a Clean Credit History?
As the vast majority of accessible loans for applicants using benefit income tend to be relatively short-term, there is more focus on their ability to pay as opposed to the applicant’s credit history.
Challenging credit history may well result in a higher interest rate, but all things being equal, it is unlikely to be the main reason why an application would be rejected.
That said, the better your credit rating the less potential risk and therefore, the more likely lenders will look favourably on your application.
How Do I Find the Best Rates?
This is a very interesting subject. The Internet has brought the UK loan industry into homes and offices up and down the country. Much will depend upon your knowledge and confidence in researching the best rates because you will also need to take into account terms and conditions.
Many people often mention comparison websites, but they rarely include all market offers, and indeed many offers may only be available to credit brokers.
If you lack experience and knowledge of the market, then you may benefit from going through a credit broker to find the best deal for your situation.
Any lines of secure income will be considered by loan companies although benefit income may not necessarily be applicable for traditional personal loans through high street banks.
However, there are many niche lenders focused on those looking for finance when on benefits with so-called payday/quick loan companies very prominent.
Dependence on benefit income is not a barrier to securing finance, although you may experience higher than average interest rates if you also have a troubled credit history.
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