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Loans for People On Benefits – Little-Loans Guide

Finding a loan can be tough and the simple fact is that the process can be considerably harder if you are on benefits. That’s because although you may earn a relatively predictable level of income from the Government, in many cases that income will be significantly less than those who are in regular employment.

We understand how frustrating it can be to apply for loans when you’re receiving benefits and don’t know where to turn. To help point potential borrowers in the right direction, we’ve compiled this short guide to loans for people on benefits which addresses some of the key questions that applicants may have.

Can you get a loan on benefits?

When lenders decide whether to approve a loan application, they look at a variety of factors that are specific to the potential borrower. Chief among these is any income that the applicant receives whether from employment or other sources. This is because, whilst most lenders are interested in the financial history of borrowers and whether they have bad credit, it is vitally important that all borrowers have a reasonable route to repaying their loan. Setting aside your financial past, without a clear indication of your income today, lenders are unable to assess whether a borrower will be able to keep up with loan repayments.

The good news is that in some circumstance’s lenders are willing to accept certain benefits as a form of regular income. This means that many people who are in receipt of benefits may in fact be eligible for a loan dependent on a number of additional personal factors. Applicants in receipt of long-term benefits such as Disability Living Allowance are likely to be considered for different kinds of loans than those on short term or temporary benefits and different lenders will cater for these distinct kinds of borrowing. 

Which benefits count towards my income?

As mentioned above, the kind of benefits that you receive may well influence the types of loans that are available to you. Without looking at a more complete picture of your circumstances it is impossible to say whether you will qualify for a loan but as a starting point, lenders may consider the following benefits as eligible income:

  • Personal Independence Payment
  • Incapacity Benefit
  • Child Tax Credit
  • Child Benefit
  • Working Tax Credit (or its replacement, Universal Credit)
  • Fostering Allowance
  • Employment and Support Allowance (previously Severe Disablement Allowance or Incapacity Benefit)
  • Industrial Injuries Disablement Benefit
  • Disability Living Allowance (or its replacement, Personal Independence Payment)

Which benefits don’t count towards my income?

There are also some benefits that lenders are less likely to consider when determining if your regular income meets their criteria. Whilst this will vary from lender to lender, commonly excluded benefits include:

  • Housing Benefit
  • Income Support
  • Job Seekers’ Allowance
  • Pension Credits

Being in receipt of any of the above will not necessarily disqualify you from being approved for a loan, but you may find it more difficult if you do not also receive a qualifying form of income.

Can you get a loan on Disability Living Allowance?

Disability Living Allowance (DLA) is being replaced by Personal Independence Payment (PIP). Both benefits are designed for people who have long term ill-health or a disability, and the amount you get per week will depend on how your condition affects you.

Many people who receive Disability Living Allowance or Personal Independence Payments may be eligible for loans, as lenders view these benefits as a regular form of income.

If you need help with understanding DLA, PIP or whether you qualify for either benefit, you can contact a community support organisation or the Citizens Advice .

How can I apply for a loan on benefits?

If you receive benefits, the process of applying for a loan is not much different than for people who receive income from regular employment. Whilst you may have to provide some additional details relating to the kinds of benefits you receive along with your total monthly income and usual expenditure, the process can be quick, simple and stress-free.

As a reputable credit broker authorised and regulated by the Financial Conduct Authority (FCA), we work with a panel of lenders who consider applicants from a broad range of backgrounds – including those who receive benefits. Our fast and free-to-use eligibility checker will provide you with an instant indication of your chances of being approved for a loan, without the need for a credit check. You may then choose to continue with our quick and simple application form – which performs only a ‘soft’ search of your credit file to help us identify the lender that is most likely to grant you a loan.

If you wish to complete your application with a direct lender, they will conduct a full credit check which may affect your credit score. If you are approved for a loan, the money may be paid into your account in just minutes*.

Can I apply for a loan on Universal Credit?

Yes – the loan application process for people who receive Universal Credit is the same as described above.

Keep in mind that whilst some lenders provide loans that are specifically designed for people who receive benefits, the options available to you may be more limited than if you had a higher level of income from employment.

Alternative Options – Budgeting Loans and the Budgeting Advance

For those who receive benefits, taking out a quick loan may not be an appropriate solution to financial problems. Despite the many companies that claim to offer payday loans for people on benefits, it is always advisable for potential borrowers to consider how a loan might impact on their finances and to be aware of all potential options that are open to them.

If you have been on certain benefits for at least 6 months, you may be eligible for a Budgeting Loan from the Government. Budgeting loans are a source of interest free credit that can help pay for things like household goods, travel and rent. You can find out more about Budgeting Loans here.

The Government also provides financial relief to people who receive Universal Credit in the form of a Budgeting Advance. Suitable for dealing with a range of unexpected expenses, Budgeting Advances are also generally available to people who have claimed certain benefits for at least the past 6 months and are repaid directly from future Universal Credit Payments. You can find out more information about Budgeting Advances from the Government Website.

I need debt advice. Who can I speak to?

If you’re in receipt of benefits and are struggling financially, it is important to consider how taking out loans may impact you. If you are concerned about coping with increasing levels of debt and financial commitments the organisations listed below can provide you with free and impartial advice.

moneyadviceservice.org.uk

stepchange.org

nationaldebtline.org

*Once approved, your cash could be sent within minutes. The time that it takes for the cash to be received in your account will depend on your bank’s policies and procedures.

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Representative Example: Amount of credit: £1200 for 18 months at £90.46 per month. Total amount repayable of £1628.28. Interest: £428.28. Interest rate: 49.9% pa (variable). 49.9% APR Representative. We’re a fully regulated and authorised credit broker and not a lender