If you're struggling and don’t have enough to live on, you may be able to get help from your local council or get an interest free government loan.
However, if you are already waiting for benefit payments to kick in, you may be able to get them paid out earlier.
Know your fundamental rights
Being ill or disabled shouldn't stop you from getting a loan. Banks should never discriminate and must treat you like an able-bodied person. The anti-discrimination rules may apply to you, even if you don’t consider yourself disabled.
So if you have a health condition like MS, CANCER, HIV or a mental illness, rest assured that you cannot be treated with bias because of it.
Apply at your local council
If you aren’t eligible for a budgeting loan, there should be a credit union in your area that may be able to offer you an alternative.
They provide personal loans at low rates and gladly help those who are in financial need. It may not always be the case, but you might have to save a certain amount with credit unions before you will be eligible for a loan.
If you can, avoid payday loans
Before taking out a payday loan, you should consider alternative options. It may feel like an easy option but, it can quickly turn into a big debt problem. It can also affect your credit rating.
What loan options do I have if I’m on benefits?
Some lenders are hesitant to accept applicants that are receiving benefits. But others will consider this form of income.
- Guarantor loans - A guarantor is contractually obliged to repay any debt if you couldn’t. It helps lenders feel comfortable approving applicants on a low income. If you opt for guarantor loans, you might get deals you wouldn’t normally get.
- Secured loans - With this type of loan you can put up an asset as collateral against late payments. Whether you have a home or an existing mortgage, you may use the property as collateral. You run the risk of losing your home if payments are not made on time.
- Credit-builder credit cards - These are ideal for applicants with low income and poor credit. The credit limits are usually lower than your ordinary credit cards and the APR is often high. The criteria is much more relaxed than those of the other cards, which can be a useful option for people on benefits.
- Vehicle finance plans - These are secured loans used to buy new vehicles. The purchase cost is split into monthly installments with added interest and the car will be used as collateral.
- Specialist lenders - Some providers specialise in offering loans to people with poor credit ratings and low income. These loans, however, have a higher interest rate than your more traditional lenders. Make sure you can make the monthly repayments before applying.
- Payday loans - These should always be your last resort, as their interest rates are ridiculously high even though they appear to be an easy option.
Will receiving benefits affect my credit score?
The benefits received from the government, do not appear on your credit record, so it has no direct impact on whether or not you qualify for a loan.
But, because you receive benefits from the government, it means that you have a financial shortfall.
You will be assessed by lenders and, if they see that you won’t be able to make the monthly payments, they will reject your application.
If you know that you won’t be able to make your repayments, don’t apply for the loan. There have been many benefit recipients that were able to pay back their loans.
How to get a loan while on benefits
Budgeting - The most important step is making sure that you can afford your monthly repayments. These are loans that are meant to provide financial assistance and not add to your existing burden so, budgeting is crucial to success.
Review your credit record - Make sure to regularly check your credit record or score using TransUnion, Equifax or Experian. They will be able to show you where you stand. A failed application can harm your credit score, so make sure you choose wisely.
Apply - It’s always best to do this using the lender's website. They will want personal details, financial information and will run a credit check. You will get your application outcome within minutes and the chance that you might get your money on the same day is really good.
DOs and DON’Ts when applying for credit
Do - here are the things you should do when looking for a loan:
- Always compare lenders to find the right one for you.
- Check your lender’s eligibility criteria before you apply.
- Make sure you pay your loan instalments on time.
Don’t – here are the things you shouldn’t do when looking for a loan:
- Take out a loan you can’t repay.
- Make the mistake of sending in multiple applications at the same time.
What about a broker?
Brokers are a good idea as long as you know that it’s unlikely that they'll have the whole market checked out. But, rather they'll compare a subsection of lenders with whom they have an arrangement.
The broker will take on the burden of finding suitable lenders. Brokers will find the best available rate for you from their panel, always bearing in mind your circumstances. The service is generally free because the broker gets a referral fee from the lender.
Some brokers run soft searches with a range of lenders that can be found in mere seconds. This also means that your credit score is not impacted and you will receive realistic rate quotes for loans. This is the best way to avoid disappointment and protect your credit score.
The bottom line
Sadly, people on benefits have difficulty accessing traditional loans, even though they are usually the people who need them the most. Nevertheless, there are many different forms of credit and by comparing options, you are sure to find a lender that will suit your needs.