Can I get a loan on benefits?

Loans for people on benefits

Some lenders offer loans to people who receive government benefits as their main income. Your benefits can count as regular income, which means lenders can consider you for a loan.

However, getting a loan on benefits can be more challenging than if you have a job. Lenders want to make sure you can pay back what you borrow. They'll look at your income from benefits and your monthly expenses to decide if you can afford the loan.

The most important thing to remember is that you should only borrow what you can afford to pay back. Benefits provide a fixed income, so it's crucial to budget carefully.

Can I get a loan on Universal Credit?

Some lenders accept Universal Credit as income, so you can apply for loans with them while receiving the benefit. This includes high street banks, credit unions, and specialist lenders who focus on helping people with lower incomes.

When you apply for a loan on Universal Credit, lenders will want to see:

• Proof of your Universal Credit payments
• Your bank statements showing regular payments
• Details about your monthly expenses
• Any other income you might have

What types of loans are available?

Several types of loans are available to people on benefits:

• Personal loans are the most common. You borrow a fixed amount and pay it back over a set period with interest. Banks, building societies, and online lenders offer these loans.
• Secured loans use something you own (like your home) as security. These can offer lower interest rates but come with more risk, e.g. as a last resort, your property could be possessed if you fail to keep up with repayments.
• Guarantor loans involve having someone with good credit agree to pay if you can't. This can help you get approved when your credit score isn't perfect.
• Credit union loans can provide better rates and more flexible terms for people on lower incomes. Credit unions are community organisations that help local people with financial services.
• Budgeting loans from the government help with specific essential items. These are interest-free but have strict rules about who can apply.

How to get a loan on benefits

If you decide a loan is right for you, here's how to improve your chances of approval:

• Check your credit score before applying. You can do this for free with companies like Experian, Equifax, or TransUnion. If your score is low, work on improving it before applying.
• Gather your documents including benefit award letters, bank statements, and proof of address. Having everything ready speeds up the application process.
• Calculate what you can afford by listing all your income and essential expenses. Only borrow what you can comfortably repay without struggling.
• Compare different lenders and their interest rates, fees, and terms. Remember to check that the lender is FCA authorised. A broker, like ourselves, can help.
• Consider getting help from a credit union or financial support organisations who can guide you through the process.
• Apply with the lender most likely to accept you rather than making multiple applications, which can harm your credit score. Use eligibility checkers before applying to prevent damage to your credit rating.

Can the government help?

The government offers several ways to help people on benefits who need financial support. Some of these include:

• Universal Credit budgeting advances
• Budgeting loans
• Local welfare assistance
• Council Tax Support
• Housing Benefit or Universal Credit

Low income loans

Several organisations specialise in providing loans to people on low incomes and benefits:

• Credit unions are community-based organisations that aim to offer loans with fair interest rates and flexible terms.
• Community Development Finance Institutions (CDFIs) focus on helping people who can't access mainstream credit. They offer loans with reasonable rates and provide financial education alongside lending.
• Ethical lenders prioritise responsible lending and offer loans designed for people on lower incomes. They typically have more flexible criteria than traditional banks.
• Some high street banks have specific products for people on benefits, though these might have higher interest rates than their standard loans.

Things to consider before applying

Before you apply for any loan, ask yourself these important questions:

• Can you really afford the monthly payments alongside your other expenses? Remember that benefits provide a fixed income, so there's little room for error.
• Have you tried all other options first? Grants, charitable help, and government support don't need to be repaid.
• Do you understand all the costs involved? Look at the annual percentage rate (APR) and the total amount you'll pay back, not just the monthly payment.
• What happens if your circumstances change? Consider whether you could still afford payments if your benefits changed.
• Are you dealing with a reputable lender? Avoid loan sharks and companies that seem too good to be true.

What are the alternatives?

Here are some common scenarios where people consider loans and the possible alternatives:

Situation	How to get help	Your options
Late benefit payments	Contact your local council. Ask family and friends. Contact local charities and support organisations.	Emergency help or hardship funds. Friends may be able to tide you over short-term. Some organisations offer emergency grants or food vouchers.
I've had an unexpected cost	Check for any savings. Speak to your benefits office. Contact local charities and support organisations. Speak to source of the unexpected cost.	Even small amounts of savings help reduce how much you need to borrow. Your benefits office may offer advance payments. Some charities may provide grants. Ask if you can pay for the expense in instalments rather than all at once.
My home needs adapting	Contact your local council. Speak to local charities. Discuss situation with your housing association or landlord.	Disabled Facilities Grants can pay for essential adaptations. Access to Work schemes might help if the adaptations relate to your ability to work. Charities may provide grants. Your property owner could be able to assist.
I'm ill and can't work	Contact your local council to apply for health-related benefits. Speak to your existing creditors. Contact charities.	Personal Independence Payment (PIP) Employment and Support Allowance (ESA) Council Tax reduction Housing benefit Possibility of payment holidays or reduced payments. Charitable grants may exist for people with your specific condition.
I've lost my job	Contact your council about benefits you may be entitled to. Speak to your mortgage lender or landlord.	Universal Credit Jobseeker’s Allowance Council Tax support

Where to get free advice

If you're unsure about taking out a loan, these organisations offer free, impartial advice:

• Citizens Advice provides face-to-face, phone, and online advice about benefits, debt, and money management.
• StepChange offers free debt advice and can help you understand your options.
• National Debtline provides free telephone and online debt advice.
• MoneyHelper offers free guidance about loans and budgeting.

Your local council might also have money advice services or know about local support available.

Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.