Loans for people on benefits

Getting a loan on benefits can be difficult, but it’s not impossible. Some lenders will even count certain benefits as income. But you may only qualify for loans with high interest rates. And you risk damaging your credit score and falling into debt if you can’t make repayments.

Here’s what you need to know about loans for people on benefits.

Can I get a loan if I’m on benefits?

It’s certainly possible, but it could be difficult to find a loan if you’re on benefits and only receive a low income. Mainstream high street lenders typically won’t lend to you unless you’re employed, but there are specialist lenders who’ll count certain benefits as part of your income.

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’ll 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, or if there are other alternatives that you could explore first.

Types of benefits considered by lenders

Some lenders may class certain benefits as regular income, for instance:

Universal Credit
Child and Working Tax Credit
Disability Living Allowance (DLA), or its replacement Personal Independence Payment (PIP)
Child Benefits
Employment and Support Allowance (ESA) – previously called Severe Disablement Allowance or Incapacity Benefit
Fostering Allowance
Industrial Injuries Disablement Benefit.

However, although it varies depending on the lender, there are some benefits that are typically not considered as regular income, such as:

Job Seekers’ Allowance (JSA)
Pension Credits
Housing Benefit
Income Support

Receiving benefits 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.

Things to consider when looking for a loan if you’re on benefits

When deciding whether to approve your loan application, lenders will consider factors like:

Benefit type

Lenders will look at your income to determine if you will have enough money coming in to repay the loan. Regular, stable employment income will put lenders most at ease, but 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

A lender is 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, and 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, and 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 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 a loan 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.

What 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 as collateral to qualify. Some lenders may accept people on benefits 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 – typically a financially stable family member or friend, with a decent credit history – who agrees to pay the loan if you’re not able to.

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

You may be able to find bad credit loans that will accept people on benefits 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 likely 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 the value of 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 repossesed.

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, as lenders 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 unions typically offer lower interest rates to their members, but you may have to save with them for a while before you can borrow.

Some credit unions also offer what’s known as child benefit loans or family loans 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 if you’ve been on certain benefits, such as Income Support, JSA, ESA or Pension Credits for 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.

Find out more about budgeting loans on the GOV.UK website.

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

Budgeting Loans – these have replaced crisis loans. They can help you pay for certain things like rent in advance, furniture or white goods, funeral costs, maternity costs and more. You can be eligible if you’ve been on certain benefits for six months. Repayments will be taken from your benefits.
Universal Credit (UC) Advance – because of lag between claiming for UC and receiving your first payment, you can apply for an advance payment if you are in financial hardship, 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 on you’ll usually get help paying the interest on up to £200,000 of your loan or mortgage, if you are in receipt of certain qualifying benefits.
Hardship payment – very low paid workers who have to take time off work because they are victims of crime can apply for a hardship payment, if they are not eligible for Statutory Sick Pay or other financial assistance. Payment is capped at £500. The fund is administered by the Criminal Injuries Compensation Authority.

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 could be relatively low, which lenders could use as a reason to 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.

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

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 their panel of providers. You can then compare factors such as the APR to see if any of the loans offered work for you.

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

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

Alternatives to loans if you’re on benefits

If you’re on benefits but in need of a short-term loan, there are other borrowing options to consider, such as using a credit card or an authorised overdraft. 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.

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

You may also want to consider if there is a friend or family member you can ask for support. They may be able to loan you the money you need, interest-free, to help you get back on your feet.

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

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

If you are struggling to repay your loan, contact the lender as soon as possible as they 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.

Frequently asked questions

Can I get a loan or grant if I’m on PIP?

Independence Payment (PIP). Some lenders will count your PIP payments as income when they assess whether you can afford a loan.

But it’s important to make sure you can afford to pay back what you borrow, as high interest rates could make borrowing prohibitively expensive.

If you get PIP, you may also be entitled to extra benefits, as well as reductions on certain bills, which could help improve your overall financial health. See Citizens Advice’s guide on PIP for more details.

What happens if I can’t repay my loan?

If you’re struggling to repay your loan, contact your lender as soon as possible. They may be able to help by:

Changing the terms of the loan – for example, by lowering the monthly payments and extending the length of the loan
Allowing you to take a short break from repayments
Reducing the interest you owe on the amount in arrears
Helping you to make a payment plan.

If you’re struggling with debt, charities like National Debtline or StepChange offer free and impartial advice and can help you make a plan to get out of debt.

Find free debt advice on the Moneyhelper website.

Can I get a loan if I’m unemployed?

Getting a loan when you’re unemployed isn’t easy, but it isn’t impossible either. High street banks are unlikely to lend to someone without a regular job but there are some specialist lenders who could consider you, if you decide that it’s the right course of action for you.

Read our guide to loans for unemployed people to find out more.