Loans for people on benefits

Can I get a loan on benefits?

It might be possible but, in general, loans for people on benefits can be difficult to find. You usually need to be in regular employment, with a stable income, to get a loan from a mainstream lender.

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.

There are specialist lenders and brokers who will count certain benefits as part of your income in a loan application. However, you could face higher interest rates, which means it will cost you more to borrow.

What types of loans can I get on benefits?

You could still qualify for the following types of loans while on benefits. But 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, so there’s no need to provide an asset, such as your home, as security. Some lenders may offer personal loans for people on benefits – particularly for small amounts – but the interest rate is likely be high.

Guarantor loans

Guarantor loans involve a third party who agrees to pay back the loan if you can’t. This is typically a 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 financial commitment. Both of your credit scores could be damaged if the loan isn’t paid back on time.

You can’t compare guarantor loans with Compare the Market.

Loans for bad credit

If you’re looking for loans on benefits and you have a poor credit score, you may be able to find a bad credit loan, 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 if you’re able to keep up with the repayments, it could help to build your credit score.

Secured loans

Secured loans are secured against a valuable asset, such as your house. You could have a better chance of getting a secured loan as it presents less risk for a lender. But you could lose your home if you’re unable to pay back the debt.

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 out a payday loan if you’re on benefits, particularly if you’re unemployed. If you fall behind on repayments, the interest and fees will quickly mount up.

You can’t compare payday loans with Compare the Market.

Credit union loans

Credit union loans typically offer lower interest rates to members. Many credit unions allow you to borrow as soon as you join, especially if you’re applying for a smaller loan or a specific product, such as a family loan.

You can’t compare payday loans with Compare the Market.

What our expert says...

"Loans for people on benefits can sometimes be available, but the bigger issue is often the cost attached to that access. When borrowing is limited and interest is high, it can be worth looking just as closely at repayment pressure as at whether the application is likely to be accepted."

Sajni Shah, Personal finance expert

What government loans are available?

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, income-based Jobseeker’s Allowance (JSA), income-related Employment and Support Allowance (ESA) or Pension Credits, for at least six months.

If you need a small emergency loan on benefits to pay your rent in advance, cover maternity costs or pay for a new boiler, for example, a budgeting loan could help. 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. You can have up to 24 months to pay back the loan.

• Support for mortgage interest (SMI) – 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.

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 Benefit

• 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 a lender may still factor in a benefit as part of an overall application). These include:

• Job Seekers’ Allowance (JSA)

• Pension Credits

• Housing Benefit

• Income Support.

It’s important to stress that these are guidelines only. Receiving a benefit such as JSA doesn’t automatically exclude you from getting a loan. But receiving PIP doesn’t guarantee you’ll be approved either.

Lenders will look at what benefits you receive alongside any other sources of income, 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:

Credit history

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 have 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 your benefits. They’ll want to see how it stacks up against your regular outgoings and other financial commitments.

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. In some cases, the answer you give could affect the terms you’re offered.

Be aware that you can’t use a loan for gambling, to invest, to start a business or as a deposit on a property.

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. For this reason, lenders could reject your loan application or charge you a higher rate of interest.

MoneyHelper has useful advice on applying for loans on disability benefits and the alternatives.

How to get a loan if you’re on benefits

Here’s how to apply for a loan on benefits:

1. Decide how much you want to borrow

Remember the golden rule: don’t borrow more than you need.

2. Check you can afford the repayments

Use our loan calculator to help you work out what your monthly loan repayments could be.

3. Check which loans you could be accepted for

Use our eligibility checker to see which loans you’re likely to be accepted for. It’s a soft credit check, so it won’t impact your credit score.

4. Apply for a loan

If you decide to go ahead with an application, the lender will do a hard search on your credit report before deciding whether to approve the loan.

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 options to consider. Before you take on any new debt, make sure you can afford to pay it back.

0% purchase credit card: you won’t pay any interest on purchases for a set period, as long as you keep up with the minimum monthly repayments. Ideally, with a 0% purchase credit card, you should pay off what you owe before the 0% deal ends.

Authorised overdraft: 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.

Friends and family: if you’re comfortable asking, 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. They should agree to an affordable payment plan to help you pay off your debt. Or they may 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.