Loans for people on benefits

Can I get a loan if I’m on benefits?

It might be possible, but it can be difficult to get a loan on benefits if you only receive a low income. Mainstream lenders typically won’t lend to you unless you’re employed, but will generally count benefits as part of your overall income. There are also specialist lenders and brokers who will count certain benefits as part of your income in a loan application.

Lenders will consider what you can afford to borrow, and what your credit history tells them about the likelihood of you paying them back. If you’re on benefits and you’re either unemployed or you have a low income, you’ll typically be able to borrow less, and from fewer lenders.

You could also face higher interest rates, which means it will cost you more to borrow.

So although you may be eligible for a loan on benefits, it’s important to carefully consider whether it’s the right choice for you. Make sure you explore alternatives (explained further down the page) to see if there‘s an option that could work better for you.

What types of benefits are considered by lenders?

Lenders that do offer loans to people on benefits typically class the following benefits as regular income:

• Universal Credit

• Child and Working Tax Credit

• Personal Independence Payment (PIP) or Disability Living Allowance (DLA)

• Child Benefits

• Employment and Support Allowance (ESA) – previously called Severe Disablement Allowance or Incapacity Benefit

• Fostering Allowance

• Industrial Injuries Disablement Benefit.

What types of benefits are less likely to be considered by lenders?

While every lender takes a different approach, there are some benefits that are typically not considered as regular income (although an individual lender may still factor it in as part of an overall application). These include:

• Job Seekers’ Allowance (JSA)

• Pension Credits

• Housing Benefit

• Income Support.

However, it’s important to stress that these are guidelines only. And receiving a benefit such as JSA doesn’t exclude you from getting a loan, just as receiving PIP doesn’t guarantee you’ll be approved.

Lenders will look at what benefits you receive alongside any other sources of income and any assets or savings you have. That helps them build a more complete picture of what you can afford to borrow.

What do lenders check when deciding whether to lend to someone on benefits?

Lenders will look at several factors, including:

Benefit amount and type

Lenders will look at your income to determine if you’ll have enough money coming in to repay the loan. Regular, stable employment income will put lenders most at ease. However, some benefits, such as Universal Credit, may be considered part of your income.

Credit history

As with any type of borrowing, lenders will look at your credit history to assess if you handle debt responsibly. If you have a good credit history, you’ll have a better chance of getting a loan, even if you’re on benefits. But if you’re on benefits with a bad credit score, you may find it considerably harder to get a loan.

Affordability

Lenders are unlikely to give you a loan unless they think you can afford the monthly repayments. To work out what you can afford to repay, lenders will look at your income, including benefits. They’ll want to see how it stacks up against your regular outgoings and other financial commitments.

It’s important to be honest with lenders about this, as it’s critical to make sure the loan is within your budget. If you borrow money you can’t repay, it could have serious financial consequences and affect your ability to borrow in the future.

Loan purpose

Although it’s normally pretty much up to you what you use a loan for, the lender may want to know why you’re taking out a loan. Be aware that in some cases, the answer you give could affect the terms you’re offered.

There are also some common exclusions to be aware of. For example, you won’t usually be able to use a loan to gamble, to invest or as a deposit on a property.

Guarantor

Having a guarantor could help your chances of getting approved for loans when on benefits, especially if you have bad credit. Bear in mind, though, that the lender will also want to assess the creditworthiness and financial stability of the person acting as your guarantor.

Find out more about guarantor loans.

What types of loans can I get on benefits?

You could still qualify for the following types of loans while on benefits. However, it’s important to consider your options carefully. If you’re already financially stretched, further borrowing could put you at risk of falling into long-term debt.

Personal loans

Personal loans are unsecured, meaning you won’t have to use an asset such as your home as collateral to qualify. Some lenders may offer loans for people on benefits– particularly for small personal loans – but the interest rates offered will likely be high and could make borrowing extremely expensive.

Guarantor loans

Guarantor loans involve a third party who agrees to pay the loan if you’re not able to. This is typically a financially stable family member or friend, with a decent credit history.

Having a guarantor could improve your chances of being approved for a loan. But it’s important that your guarantor fully understands the potential consequences if you’re unable to repay the loan.

Loans for bad credit

If you’re looking for loans on benefits and you have bad credit, you may be able to find bad credit loans that will accept you without a guarantor, although your choices are likely to be limited.

It’s unlikely that you’ll to be able to borrow a lot of money with a bad credit loan, and you’ll probably face high interest rates. But it could help to build your credit score if you’re able to keep up with the repayments.

Secured loans

Secured loans are secured against a valuable asset, such as a car or house, that can be repossessed if you can’t make the repayments. You could have a better chance of being approved for a secured loan, because they’re less risky for lenders. However, secured loans can be devastating for borrowers who are unable to repay and have assets repossessed.

Payday loans

While providing quick access to credit, payday loans generally come with very high interest rates and short repayment terms. Think very carefully about taking a payday loan if you’re on benefits, particularly if you’re unemployed. Lenders can charge high penalty fees if you fall behind on repayments.

Credit union loans

If you’re a member of a credit union, it’s worth seeing how they could help. Credit union loans typically offer lower interest rates to members, but you may have to save with the union for a while before you can borrow.

Some credit unions also offer what’s known as child benefit loans or family loans. Here, the money is paid out to parents who have their child benefit paid directly into their credit union account.

• Find a credit union

Government loans

You may be eligible for a budgeting loan (formerly called a Crisis Loan) from the UK government. You’ll need to have been on certain benefits, such as Income Support, JSA, ESA or Pension Credits, for at least six months.

If you need a small emergency loan on benefits, for example to pay rent in advance, maternity costs or a new boiler, a budgeting loan could help bridge the gap. If you’re approved, you’ll only pay back what you borrow, and the repayments will be taken automatically out of your future benefits.

Depending on your situation and what you need the money for, you might also want to consider:

• Universal Credit (UC) Advance – because of the lag between claiming for UC and receiving your first payment, you can apply for an advance payment if you’re in financial hardship. This might apply, for example, if you can’t afford to pay your rent or buy food while you wait for your first payment. You can have up to 24 months to pay back the loan.

• Support for mortgage interest (SMI) – you might be able to get help towards interest payments. If you’re eligible, you’ll usually get help paying the interest on up to £200,000 of your loan or mortgage if you’re in receipt of certain qualifying benefits.

• Hardship payment – very low paid workers who have to take time off work because they’re victims of crime can apply for a hardship payment. This applies if they’re not eligible for Statutory Sick Pay or other financial assistance. The fund is administered by the Criminal Injuries Compensation Authority.

Are there loans for people on disability benefits?

Being ill or disabled shouldn’t stop you getting a loan. Banks and other lenders are not allowed to discriminate against you because of a mental or physical health condition.

However, if you’re on disability benefits, your income may be relatively low, which may mean lenders reject your loan application or charge you higher rates.

For more information, MoneyHelper has useful advice on applying for loans on disability benefits and the alternatives.

How to apply for a loan if you’re on benefits

If you’re looking for a loan on benefits, you could apply through a specialist online broker. You’ll normally need to specify how much you want to borrow, what you want the loan for and how long you need to pay it back.

Here are the steps to take:

1. Find out how much you can borrow

If you’re unsure about the type of loan you need, our loan calculator could give you an idea of how much it could cost you to borrow over different loan terms.

A broker can do a ‘soft search’ of your credit history to see what loans you could be eligible for from its panel of providers. You can then compare factors such as the APR to see if any of the loans offered work for you.

2. Provide your personal details

You’ll also need to provide some personal details, such as any income and benefits you receive, as well as your typical outgoings.

3. Apply for the loan

If you decide to go ahead with an application, the lender will do a hard check on your credit file before making its final decision to approve you or not.

You can use our loan eligibility checker to see which loans you might be approved for from our range of providers.

What are the alternatives to loans when on benefits?

If you’re on benefits and need to borrow money in the short term, there are other borrowing options to consider. But make sure you understand the pros and cons of each type of borrowing – and before you take on any new debt, make sure you can afford to pay it back.

Credit cards: if you’re looking at a small loan, a credit card could be a suitable alternative. Make sure you can afford to keep up with the minimum monthly repayments.

Authorised overdrafts: if you only need to borrow a small amount of money for a very short time, consider using an interest-free overdraft, if you have one. If you don’t, it could be worth looking at alternative current accounts that offer this facility as these can be a better option than small loans for some.

Friends and family: if you’re in a position to be able to ask, you could see if it’s possible to borrow from your family or friends. It’s likely they won’t charge you any interest and you won’t need a credit check. Just make sure you agree how and when you’ll pay them back to avoid problems further down the line.

You could use an independent benefits calculator to make sure you’re getting all the financial support you’re entitled to from the government.

Advice if you’re struggling with your finances while on benefits

If you’re on benefits and you have debt concerns, support is available. Citizens Advice has helpful guides on dealing with debt. And you can speak to charities such as National Debtline and Stepchange for free, impartial and non-judgmental debt advice.

If you’re struggling to repay your loan, contact the lender as soon as possible. It may be willing to come to an agreement to help you pay off your debt or give you a payment break to help you get back on your feet.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.