If you're receiving benefits and need a loan, you may be wondering whether it's even possible to borrow money. Many lenders see benefits as a low or unstable income, which can make borrowing more challenging. However, it’s not impossible—there are several options available, including specialised lenders and government support schemes.
In this guide, we’ll explain:
Whether you can get a loan on benefits
The types of loans available
What lenders look for in applications
Alternatives to borrowing money
How to borrow safely without falling into a debt trap
Can You Get a Loan While on Benefits?
Yes, it is possible to get a loan while receiving benefits. However, your options will depend on the type of benefit you receive, your overall income, and the lender’s criteria. Many high street banks and traditional lenders prefer applicants with a steady salary, but some loan providers consider benefits as a form of income.
Lenders Who Accept Benefits as Income
Certain lenders will accept benefits as part of your total income. However, most will still require some additional source of income, such as:
A part-time job
A pension
Spousal or child maintenance payments
If your benefits are your only source of income, you may need to look for specialist lenders or government-backed schemes.
Types of Loans Available for People on Benefits
If you're on benefits and need a loan, here are some options you may be eligible for:
1. Personal Loans
Some lenders offer personal loans to people on benefits, but these often come with higher interest rates. Eligibility depends on your income, credit score, and ability to repay the loan.
Pros:
Can be used for various purposes
Larger borrowing amounts available
Cons:
High-interest rates for low-income applicants
Strict eligibility criteria
2. Credit Union Loans
Credit unions are community-based financial institutions that often provide affordable borrowing options for low-income individuals, including those on benefits.
Pros:
Lower interest rates than payday loans
More flexible repayment terms
Cons:
You may need to be a member for a set period before borrowing
Limited loan amounts compared to banks
3. Budgeting Loans (Interest-Free)
If you receive certain benefits, such as Universal Credit, Income Support, or Pension Credit, you may be eligible for a government Budgeting Loan.
Pros:
Interest-free borrowing
Designed for essential costs like furniture, travel, or maternity expenses
Cons:
Only available to those on qualifying benefits
Limited loan amount (£100–£812)
4. Guarantor Loans
A guarantor loan involves a friend or family member agreeing to cover your repayments if you fail to pay.
Pros:
Easier approval if the guarantor has a good credit score
Potentially lower interest rates
Cons:
Risk of damaging your guarantor’s credit if you miss payments
Can strain personal relationships
5. Payday Loans (Last Resort)
Payday loans are an option, but they should only be considered as a last resort. These short-term loans come with extremely high-interest rates and can lead to debt cycles.
Pros:
Fast approval, even with low income
No credit check required in some cases
Cons:
Extremely high-interest rates
Can lead to financial difficulties if not repaid quickly
What Do Lenders Look for When Approving Loans?
Even if a lender accepts benefits as income, they will still assess your ability to repay the loan. The key factors they consider include:
Credit Score – A higher score improves your chances of approval.
Total Income – Lenders may require additional income besides benefits.
Repayment History – Past borrowing habits impact your eligibility.
Existing Debts – If you already have loans, lenders may see you as high-risk.
Improving your credit score and managing existing debts responsibly can increase your chances of approval.
Alternatives to Taking Out a Loan
If borrowing money seems too risky or unaffordable, consider these alternatives:
1. Government Support
Local Welfare Assistance Schemes – Councils offer emergency financial help for essential expenses.
Hardship Payments – Available if your benefits have been sanctioned.
2. Grants and Charities
Some organisations offer grants to help people in financial hardship. Unlike loans, grants don’t need to be repaid. Examples include:
Turn2us
British Gas Energy Trust
Family Fund
3. Borrowing from Friends or Family
If possible, ask a trusted friend or family member for financial support. Be sure to agree on repayment terms to avoid misunderstandings.
4. Cutting Back on Expenses
Review your budget and look for areas where you can cut costs. Small changes, like switching to cheaper utility providers or meal planning, can free up extra cash.
How to Borrow Safely Without Falling Into a Debt Trap
If you decide to take out a loan while on benefits, follow these tips to avoid financial problems:
Compare Lenders – Don’t accept the first offer; check multiple lenders for the best deal.
Check the APR – The Annual Percentage Rate (APR) determines the overall cost of borrowing. Lower is better.
Read the Terms Carefully – Understand repayment terms, interest rates, and penalties before signing.
Avoid Loan Sharks – Never borrow from unregulated lenders who charge excessive interest and use aggressive tactics.
Frequently Asked Questions (FAQs)
1. Can I get a loan if Universal Credit is my only income?
Some lenders may accept Universal Credit, but options are limited. Consider credit unions or Budgeting Loans first.
2. Does taking out a loan affect my benefits?
A loan itself won’t impact your benefits, but if you save a portion of the loan, it may affect means-tested benefits.
3. How can I improve my chances of getting approved?
Improving your credit score, having a guarantor, or showing additional income can help.
4. Are payday loans a good option if I’m on benefits?
No. Payday loans have high-interest rates and can lead to long-term debt problems.
Final Thoughts
Getting a loan while on benefits is possible, but it’s crucial to explore safe and affordable options. Government support schemes, credit unions, and budgeting strategies may be better alternatives. If you do need to borrow, make sure you compare lenders, understand the terms, and avoid high-interest debt traps.
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