Can you get a loan if you receive benefits
With more than 22 million people in the UK receiving government benefits, it’s hardly surprising that several lenders will offer loans to people claiming benefits.
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What types of loan are available if you are on benefits?
There are many types of loans available if you are on benefits. Work out what’s available to you, and what offers the best deal. Remember loans on benefits from commercial lenders are likely to be at higher interest rates than loans to employed borrowers.
If you are claiming certain government benefits, you may be able to get a loan from the government.
The following table shows the various government loan types on offer:
Type of loan |
How it works |
How much you can borrow |
|---|---|---|
An interest-free loan from the government available to people on certain benefits such as Income Support or Income-based Jobseeker’s Allowance |
£100 - £812 |
|
An interest-free loan from the government available to people on certain benefits, including Universal Credit |
£100 - £812 |
|
A loan from the government to help people on benefits pay the interest on their mortgage |
Help paying the interest on up to £200,000 of your mortgage |
|
An interest-free loan from the government while waiting for your first Universal Credit payment |
Up to 100% of your estimated Universal Credit payment |
|
Hardship payment |
A loan from the government if you are on Universal Credit sanctions |
About 60% of the amount you were sanctioned by |
There are also various types of commercial loans available to people on benefits, as well as credit union loans. These different types of loan are shown on the table below.
Type of loan |
How it works |
|---|---|
Personal loan |
Borrow a lump sum that you repay, with interest, in pre-agreed monthly instalments |
Guarantor loan |
A guarantor agrees to repay a personal loan if the main borrower defaults |
Short-term loan |
A personal loan repaid in fixed instalments over several weeks/months |
Secured loan |
A type of personal loan which ties your debt to an asset you own |
Second charge mortgage |
A type of secured loan where borrowing is secured against equity in your property |
Equity release |
A type of loan aimed at people aged over 55 who either own their home outright or have a large amount of equity |
Debt consolidation loan |
Combines all your existing debts in one place so that you only make one payment each month to a single lender |
Pawnbroker loans |
Lets you borrow money if you leave a valuable item (the ‘pawn’) that you own as security |
Logbook loans |
A loan secured against a vehicle you own |
Hire purchase |
When purchasing an item, you pay a deposit then take out a loan for the rest of the money, repaid monthly with interest |
Payday loan |
A type of short-term loan designed to be repaid within 28 days |
Credit union |
Loans to people who have their Child Benefit paid into their credit union account. Credit unions can often offer better interest rates on loans than other lenders as there’s a cap on the amount of interest that credit unions can charge: In England, Scotland and Wales, the cap is 3% a month or 42.6% a year APR. In Northern Ireland the cap is 1% a month, or 12.68% a year APR |
Are short term loans regulated?
The Financial Conduct Authority (FCA) introduced new rules for ‘high cost short term credit’ in January 2015. This makes some short-term loans cheaper than they used to be.
The rules say that:
1. For all short-term loans, interest and fees must not exceed 0.8% per day of the amount borrowed
2. Default or late payment fees need to be capped at £15
3. There is a ‘total cost cap’ of 100% – this means borrowers will never have to pay back more in fees and interest than the amount borrowed
4. Someone taking out a loan for 30 days and repaying on time will not pay more than £24 in fees and charges per £100 borrowed
What factors will lenders look at if you receive benefits?
Lenders will look at the several factors to work out the likelihood that you will be able to repay the loan while on benefits.
These factors include:
- The type of benefits you receive
- Whether or not you have a guarantor
- Your credit history and credit score
- How affordable the loan is for you
You will also need to meet the following criteria to get a loan:
- Be aged 18 or over
- Be a UK resident
- Have a UK bank account
Which benefits count as income?
The benefits that lenders will accept as income when assessing your loan application varies.
Most will consider the following as income:
- Child Benefit
- Child Tax Credit
- Disability Living Allowance (DLA)
- Employment and Support Allowance (ESA)
- Fostering Allowance
- Incapacity Benefit
- Industrial Injuries Disablement Benefit
- Personal Independence Payment (PIP)
- Universal Credit
- Working Tax Credit
Which benefits don’t count as income?
There are some benefits most lenders don’t count as income when assessing your loan application.
These include:
- Housing Benefit
- Income Support
- Jobseekers’ Allowance
- Pension Credit
How to apply for a loan while on benefits?
You can apply for a loan while on benefits online, either using a loan broker or going directly to a lender. Some lenders might accept applications over the phone or by post.
When you apply for a loan you’ll need to state the amount of money you want to borrow, how many months or years you want to pay it back over, and what you need the money for.
You’ll also need to supply details about your income from benefits and employment, if you work, or pensions and savings, if you have them. The lender will also need your personal details (name, age, address) in order to carry out a credit check.
The broker or lender will also ask about your outgoings such as rent or mortgage, household bills, childcare and food. The Financial Conduct Authority (FCA), requires lenders to check whether a borrower can afford repayments before offering a loan.
In many cases, brokers will run a ‘soft’ credit check which won’t affect your credit rating. But if you apply directly to a lender it is likely to use a ‘hard’ credit check that will be visible on your credit report. Too many hard searches in a short space of time can cause your credit score to dip.
Alternatives to taking out a loan on benefits
Check your benefits entitlements
Make sure you’re getting all the benefits and financial help you’re entitled to. Use our .
Ask friends or family for help
Friends or family members may be able, and willing, to lend you money while you are on benefits. Make sure you agree how and when the money will be repaid.
Cut back on spending
Look at your outgoings to see where you could reduce spending. You could save money by changing to a cheaper supermarket, cancelling streaming subscriptions or switching mobile or broadband tariffs.
Should you use a credit card while on benefits?
Credit cards available to people exclusively on benefits tend to have higher interest rates than offered to people with jobs, so be cautious about borrowing money this way and pay it back as soon as you can.
If you already have a credit card, it’s best to only use it in emergencies to stop debts racking up.
Should you use an overdraft while on benefits?
Your bank might be reluctant to give you an overdraft while you are claiming benefits as it will be concerned about you paying it back. If you already have an overdraft, only use it in emergencies as overdraft interest rates can be high.
What are the risks getting a loan while receiving benefits?
If you take out a loan while you are on benefits, you risk your financial situation worsening if you can’t pay it back.
Loans from specialist lenders for people on benefits usually have higher than average interest rates. So make sure you can afford the repayments before you take one out. Failure to make repayments will worsen your credit score and could result in you being taken to court.
Resources to help if you are struggling
If you’re struggling with your finances while on benefits, it’s worth speaking to a debt charity for fee-free advice.
Debt charity |
Contact Details |
|---|---|
0800 144 8848 – England 0800 028 1456 – Scotland 0800 702 2020 – Wales |
|
0800 915 4604 |
|
0800 138 1111 |
|
0808 808 4000 Debt advice | Free debt advice | National Debtline | National Debtline |
Loans for people on benefits: FAQs
Will my benefits stop if I get a loan?
Your benefits won’t stop just because you get a loan. However, if you have more than £6,000 in savings, this can affect your claim for Universal Credit and other benefits.
So if you get a loan and keep the cash in your current account or savings account and the Department for Work and Pensions (DWP) find out about it, you might have to explain where the money is from and what it’s for.
Can you get a loan on PIP?
Personal Independence Payments (PIP) is a benefit to help you with everyday life if you have an illness, disability or mental health condition. PIP can normally be counted as income for a loan.
Can you get a loan on Universal Credit?
You might be able to get a loan while claiming Universal Credit. Many lenders will count Universal Credit payments as income. Depending on where you are with your Universal Credit claim, you may be able to get a Universal Credit advance or budgeting advance from the government if you are short of money.
Do I need a guarantor?
Some loans for people on benefits need a guarantor. Your guarantor will need to agree to pay the loan if you, the main borrower, defaults. Depending on the lender, the guarantor will usually need to be employed or be a homeowner.
Summary: Getting a loan while on benefits
It will be difficult to get a loan from a high street bank if you are on benefits – but there are specialist lenders who can help. You might be able to get a cheaper loan from a credit union, or an interest-free loan from the government.