There are a few options open to you if you need a loan and you are on benefits. We have detailed some of them below, and it is worth noting that if you have been on certain benefits for over 6 months then you might be able to apply for a Budgeting Loan from the government.
What loans are available?
Detailed below are loans for people on benefits that you can consider:
Guarantor loans
This is the same as co-signing a loan, and it means that someone else signs onto the loan with you – and guarantees that the loan will be paid. When the other person signs onto the loan with you, they become obligated to pay off the loan if you are not able to.
Lenders are more likely to approve a loan for someone on benefits if there is another person onboard acting as a guarantor.
Secured loans
A secured loan means that you are putting up an asset as security. This asset is used as collateral against the loan, in case you are not able to pay back the loan for whatever reason. This helps lenders lowers the financial risk to themselves either in part or in full.
This type of loan is very attractive to lenders, but it should be noted that whatever you put up as collateral could be lost if you don’t keep up with payments.
Payday loans
A payday loan is strictly a short-term solution and they normally need to be paid back in a couple of weeks. The next time that you receive your benefits, that’s when it needs to be paid back – the penalty for not paying is a reduced credit score and interest being applied to the loan, usually at a painfully high rate.
Can you get a payday loan when on benefits?
It is something of a myth that people on benefits, such as Universal Credit, cannot apply for a payday loan. It is not really recommended, because of the short-term nature of the repayment, but more and more lenders are willing to accept those on benefits.
What loans can you apply for if you are on Universal Credit?
You can apply for a budgeting loan from the government if you have been claiming Universal Credit and need to cover expenses. This type of loan is meant to cover the following types of expenses:
- Broken appliances (fridges, etc.)
- Home repairs
- Work-related costs (uniform, tools etc.)
- Travel costs
- Unexpected bills
- Rental deposits
- Maternity costs
- Essential costs such as food or clothes
If you apply for and receive, a Universal Credit based loan, your benefit payments will be reduced automatically until the amount is paid back – this typically covers a 12 month period.
Benefit loan alternatives
There are several alternatives if you are struggling to be accepted for a benefit loan, for whatever reason. The first thing you should do is check the government website, and you might consider borrowing from friends or family too.
It should also be noted that since the introduction of Universal Credit, Crisis Loans can no longer be applied for.
Guarantor loans are a great alternative if you can find someone willing to co-sign a loan with you – although you should be certain that you can pay the loan back before you go ahead, as it can ruin relationships if the guarantor ends up having to pay for you.
The next best option, as discussed, is a payday loan – this kind of loan however should only be considered if you can repay the next time you get your benefits, without leaving yourself needing another loan to cover your expenses for the following month.