Can I get a loan if I’m receiving disability or unemployment benefits?

In short, yes. However, you could find it more difficult to be accepted for a loan if you have a low income and are receiving disability or unemployment benefits. This is because lenders may be wary of your ability to pay back the loan if they view your income as unstable.

7 min read
Can I get a loan if I’m on benefits?

Should I get a loan when claiming benefits?

Claiming benefits is not a reason for or against getting a loan. It largely depends on your individual circumstances, and if a loan is affordable for you to repay on top of maintaining your priority bills (rent, council tax, etc) and any debt repayments. If so, then there’s nothing to stop you applying for a loan.

However, it would be wise to consider why exactly you need a loan and if it’s worth it. You may risk ending up with unaffordable monthly repayments, and if you miss these, you can severely impact your credit score.

My benefit payments are late

If there is a delay in receiving your benefit payments and you’re in a financial crisis, you don’t necessarily need to take out a loan. There are other short-term alternative options which you may be eligible for, such as a Universal Credit Advance.

A Universal Credit Advance worth up to one month’s payment can cover the gap between applying for and receiving Universal Credit (which can take up to 5 weeks). This advance is deducted from future Universal Credit payments for up to 12 months.

An unexpected expense

So, what options are there for those of us who have not budgeted for unexpected expenses, such as a broken boiler or a car repair?

  • Look into a credit card (some offer interest-free deals, although this is dependent on your credit score so it may not be available)
  • Utilise savings if you have any
  • See if you can set up a manageable payment plan to cover the costs
  • Borrow money off friends and family
  • Use an overdraft
  • You may prefer to contact your local credit union for a small low-cost loan
  • The government can also provide budgeting loans on top of benefits to help pay towards essentials

My home needs adapting

Local Home Improvement Agency:
Are you a homeowner or private sector tenant, looking for support and financial advice to make essential home adaptations? If you need to adapt your home to help your disability but don’t know where to start, you may be eligible for financial support. It could be a good idea to contact your local Home Improvement Agency. They can help you to find a contractor and plan your finances to pay for the modifications, which may be more cost-effective than a standard loan.

VAT deductions:
You may not be charged VAT on work carried out to modify your home if you have a long term disability.

Support for Mortgage Interest:
If you are a homeowner with a disability and are receiving Employment and Support Allowance (ESA) or Income Support, you may be eligible for a government scheme called Support for Mortgage Interest. This scheme is run through your local Jobcentre and can help with interest repayments on your mortgage and on loans specifically obtained to help adapt your home.

Disabled Facilities Grant:
Alternatively, you could contact your local authority to apply for a Disabled Facilities Grant, which helps homeowners and tenants alike make major adaptations, such as widening doorways or installing an accessible shower room.

Local authority:
If you live in England and need to make minor adaptations for under £1,000, such as installing handrails, your local authority should be able to provide these for free, as long as you meet certain criteria.

In Scotland, the threshold is £1,500. In Wales you may have to pay a sum depending on your financial circumstances. In Ireland, it would be at the discretion of your local trust. In Northern Ireland, the Housing Executive have grants available.

Getting a loan when claiming disability benefits

“Anti-discrimination laws in the UK ensure that everyone is entitled to apply for credit, regardless of whether they are claiming disability benefits or not.”

That being said, there is no guarantee of being accepted for credit, especially if you have a low income. Lenders will see this as a risk, with a low likelihood of receiving their money back, which means that they will either not supply credit or they will apply high interest rates or offer you a guarantor loan instead.

Getting a loan when you’re ill and can’t work

It can be a very stressful time if you are out of work due to an illness and you may be finding it hard to make ends meet. If you are in this situation, we suggest that you contact an independent financial advisor to review your finances and find the most suitable way forward.

There are also charities that you can speak to for free advice on budgeting and repaying debts, such as Turn2Us.

It is unlikely that mainstream lenders would provide a loan to someone who is struggling financially. In the interim, you might be able to claim Statutory Sick Pay from your employer for up to 28 weeks, depending on the conditions of your contract.

Getting a loan if you’ve lost your job

Lenders will complete an income and expenditure review to assess whether you can maintain the loan repayments on top of your priority bills. Most mainstream banks will not lend to customers who are out of work.

There are some lenders, however, who specialise in providing credit to people who are out of work or have bad credit. You need to be mindful that these types of lenders tend to offer higher interest rates, making borrowing more expensive or may offer you a guarantor loan instead.

Again, it would be best to contact an independent financial advisor or a charity to review your individual circumstances to discuss the best option for you.

Can the government help?

You could apply to see if you are eligible for Universal Credit or Employment and Support Allowance (ESA), if you are no longer able to work due to a disability or have reduced capability to work. Contact your local Jobcentre to see if you can claim Jobseeker’s Allowance if you have lost your job.

An interest-free Budgeting Loan from the Social Fund, available if you have been receiving certain benefits for 6 months. Check if you are eligible here.

Local Welfare Provisions are provided by local authorities, which can help cover the cost of food and other essential items. Use this free benefits calculator to see what benefits you may be entitled to.

How to apply for a loan

If you’ve decided that a loan is the most suitable option for you, the first thing to do is research what loans are available, taking into consideration things like the amount you want to borrow, monthly repayments and interest rates.

You will need to get in touch with a broker or the lender to fill in your personal details as part of the application process. They will ask you questions such as your name, DOB, address, as well as financial information such as your monthly incomings and outgoings. Some brokers and lenders have soft search facilities, so check online to see if you're eligible for a personal loan.

Most lenders will also check your credit report to see how good your credit score is, as this gives them a good idea of how risky it would be to lend money to you.

Are there any other alternatives?

Before going ahead, it is important to consider whether a loan is the best form of credit for you. Personal loans are usually taken out for larger amounts of credit to be repaid over a longer time, but there are other options also available, such as credit cards, for example.

While there is nothing to stop you applying for a personal loan if you’re on benefits or a low income, make sure you can afford the monthly repayments before committing.

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Disclaimer: All information and links are correct at the time of publishing.

Adele Kitchen, Personal Finance Writer

Adele Kitchen

Personal Finance Writer

Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.