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Budgeting loans explained

If you’re on benefits and need to borrow money to cover an essential cost, a budgeting loan or advance from the government could be an option. What can budgeting loans be used for, and how can you get one? We explain all in our guide.

If you’re on benefits and need to borrow money to cover an essential cost, a budgeting loan or advance from the government could be an option. What can budgeting loans be used for, and how can you get one? We explain all in our guide.

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The Editorial Team
Experts in personal finance, insurance and utilities
1 JULY 2024
5 min read
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What is a budgeting loan?

A budgeting loan is a type of interest-free loan offered by the Department for Work and Pensions (DWP) to help you pay for essentials or unexpected expenses.

You can only get it if you receive certain means-tested benefits, but you could borrow up to £812, depending on your circumstances.

In 2022-23, budgeting loans totalling £278 million were issued through the DWP’s Social Fund scheme, down from £303 million in 2021-22, government statistics show.

Because it’s a loan, you have to repay the money you’ve borrowed, but unlike standard loans, there’s no interest to pay. Budgeting loans are also much cheaper than other alternatives like payday loans and high-interest overdrafts.

Budgeting loan repayments are based on what you can afford, and are taken through an automatic reduction in future benefits you receive.

What are budgeting loans for?

Budgeting loans are designed to help people on a low income pay for essential household goods and services. They can be used for a range of purposes, including:

Furniture or household items

Replace a broken washing machine, fridge or cooker, for example, or buy a new table and chairs.

Clothes or footwear

Buy you and your family new coats, shoes and trainers, etc.

Rent in advance

Get financial help to tide you over if you’re struggling to pay your rent or accommodation costs.

Costs linked to moving house

Cover removal costs, expenses to secure new accommodation or other costs associated with moving home.

Maintenance, improvements or security on your home

Fund home improvements, essential repair work or security measures such as installing new locks.

Travelling costs within the UK

Get help with essential UK travel costs – for example, train tickets for getting to work or visiting a sick relative.

Costs linked to getting a new job

Cover the cost of essentials to help you find work, such as a suit or taxi fares for interviews.

Maternity costs

Get a loan to buy a cot, pram or other baby essentials. Alternatively, you might be able to claim a £500 Sure Start maternity grant that doesn’t need to be paid back.

Funeral costs

Cover funeral expenses for a relative or close friend. Alternatively, you could apply for a funeral expenses payment.

Repaying hire purchase loans

Get help to pay back car finance if you’re at risk of having your vehicle repossessed.

Repaying loans taken for the above items

A budgeting loan can also be used for paying back any loans taken out in your name for any of the reasons listed above.

Who can get a budgeting loan?

To be in with a chance of getting a budgeting loan, you’ll need to meet certain eligibility criteria. You must have been receiving one of the following benefits for at least six months:

  • Income support
  • Pension credit
  • Income-based jobseeker’s allowance (JSA)
  • Income-related employment and support allowance (ESA).

This is where things get a little complicated. If you’ve recently switched from universal credit to pension credit, you can count any time spent claiming universal credit towards the qualifying six months.

If you currently get universal credit and are looking to borrow money under the DWP scheme, you’ll need to apply for what’s known as a ‘budgeting advance’ rather than a budgeting loan, which will be explained in more detail later.

You won’t be eligible for a budgeting loan if you receive ‘new-style’ JSA or ‘new-style’ ESA. You also can’t get one if you’re taking part in any type of industrial action like a strike.

The budgeting loan scheme applies to people living in England, Scotland and Wales. If you live in Northern Ireland, there’s a different way to get a budgeting loan.

How long do budgeting loans take?

Applying for a budgeting loan online is generally a faster process than applying by post.

  • Online application – you’ll get a decision within seven days if you choose to be notified by email or text, or 21 days if you choose to be informed by letter.
  • Postal application – you’ll get a letter telling you whether you’ve been offered a loan within 21 days.

You’ll need to accept the offer before your loan is paid. If you choose to go ahead, the money should appear in your bank account within:

  • Seven days of accepting the loan offer online
  • 21 days of your loan acceptance being received by post.

To avoid hold-ups, make sure you submit all the necessary details and documents you need to get your budgeting loan.

What is a budgeting advance?

A budgeting advance is an interest-free loan for people claiming universal credit. It’s very similar to a budgeting loan but has slightly stricter rules. You must pay back what you’ve borrowed within 12 months through a reduction in your universal credit payments.

The table below shows the main differences between a budgeting loan and a budgeting advance:

Loan requirements Budgeting loan Budgeting advance
Eligible benefits Income support, pension credit, JSA, ESA Universal credit
Maximum repayment term 2 years 1 year
Exclusion rules You owe more than £1,500 in budgeting loans You’re still paying off a previous budgeting advance

A budgeting advance shouldn’t be confused with a universal credit advance. This is where new universal credit claimants experiencing financial hardship can apply for their benefit payment upfront.

What other help is available?

If you’re struggling to stay on top of your finances, there’s other help available. You may be able to access the following, depending on where you live in the UK:

It’s also worth checking whether you could save money on your household bills. You may be eligible for social tariffs on your broadband or water bill. Who is eligible for help and the level of support varies between providers. You could also see if you can find better deals for your car or home insurance. You can compare deals on a range of services and products with Compare the Market, and we also have tips on how to manage the cost-of-living crisis that you might find useful.

Budgeting loans: a summary

If you’re on benefits, a budgeting loan could help get you out of a financial fix if you need to cover certain expenses. The main advantage is that you won’t be charged interest on the amount you borrow.

If you’re not eligible for a budgeting loan, or you want longer repayment terms, you could compare loans with us. Remember though, taking out any sort of loan is a big decision and it’s vital you don’t get into further debt trying to pay off the loan.

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.

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Frequently asked questions

How many budgeting loans can I get on universal credit?

If you’re on universal credit, you can’t get a second budgeting advance until you’ve fully paid off the first. So even if you didn’t take out the maximum amount with the initial loan, you can’t then decide to top up your advance to the full amount.

Why would you be refused a budgeting loan?

You might be refused a budgeting loan if you don’t meet the eligibility criteria or the DWP doesn’t think you’ll be able to pay back the money. You’ll also be turned down if you already owe more than £1,500.

If your application for a budgeting loan is rejected, you can ask for the decision to be reviewed. To do this you must apply in writing within 28 days of the date the decision was given.

How much is a budgeting loan?

The lowest amount you can borrow is £100, but the maximum depends on your household circumstances. You could get:

  • £384 if you’re single
  • £464 if you’re part of a couple
  • £812 if you have children.

However, each application is judged on a case-by-case basis, and you could get less than the maximum if you have savings over £1,000 or you’re paying back an existing budgeting loan.