If you’re struggling to pay for living costs or need money to pay for something, you might be able to get interest-free benefit loans in the UK.
In this article, we’ll explain how to get a loan on benefits, what they cover, and how much you can borrow.
Let’s dive in.
The short answer is yes.
There is no law saying that you cannot get a loan just because you’re getting monetary aid from the government.
That said, it is still harder to take out loans while on benefits.
Regardless of where you’re getting the loan, you’ll need to show that you can repay it comfortably.
Benefits loans are neither ‘welfare benefits’ nor ‘allowances’.
They’re small benefit loans that are funded from the Social Fund and designed to help individuals who receive benefits cover unexpected costs such as:
Only individuals who receive certain types of benefits for 6 consecutive months can be eligible for a Budgeting Loan from the Social Fund.
You can apply for a Budgeting Loan if you receive:
You’re not eligible for a Budgeting Loan if:
If you’re applying for a small loan on benefits from a credit union or a bank, you’ll need a good credit score and regular income. Having a good credit score can help you get favourable interest rates on mortgages.
Benefits that count as regular income include:
Benefits that don’t count as income include:
Individuals who receive Universal Credit do not qualify for a Budgeting Loan.
However, if you’ve moved from Universal Credit to Pension Credit, the time you’ve spent on Universal Credit will be counted toward the 6 months of benefits you’re required to have to apply.
If you’re on Universal Credit and you need a loan, you can apply for a Budgeting Advance instead.
Worth noting: If you’re applying for Universal Credit, you can backdate your claim.
If you’re receiving Disability Living Allowance (DLA) or Personal Independence Payment (PIP) benefits, you won’t be able to apply for a Budgeting Loan from the Social Fund – unless you get other benefits that might make you eligible for getting a Budgeting Loan.
You could still find loans for people on PIP at credit unions or a regular bank, which would require having a good credit score and regular income. If you don’t, you could potentially take out a loan from a payday lender, which usually comes with high-interest rates.
You can apply for a Budgeting Loan from the government online or by post.
To apply online click here and then on the ‘Apply Online’ button. When applying, you’ll need to choose how you want to receive the decision for the loan:
To apply by post, you’ll need to fill out an SF500 application form. You can download the form from the government’s website or call the Social Fund Enquiry Line and ask them to send you a form (which can take up to 7 days to arrive).
Once a decision arrives, you can accept the loan the same way you applied.
If you accept by post, you’ll need to sign page 4 of the acceptance letter and return it in the prepaid envelope that comes with the letter. The reply slip has to be folded in a way that makes the return address visible in the envelope window.
Worth noting: If you disagree with the decision you can ask for it to be looked at again.
Getting a Budgeting Loan doesn’t require having a guarantor. You might need a guarantor if you’re taking a loan from a bank or another lender.
You can borrow a minimum of £100 and up to:
How much you can borrow also depends on whether:
Budgeting Loans (from the Social Fund) are interest-free, meaning you won’t have to pay back more than what you took.
The amount and the number of the weekly payments are based on your income, benefits, and what you can afford. The money is repaid automatically through your benefits and you’ll have to repay the loan within 2 years.
A Budgeting Loan is the best option for people on benefits because they are interest-free.
However, if you’re not eligible for a Budgeting Loan or a Budgeting Advance, there are other options.
Credit unions are nonprofit organisations where you can borrow money at low interest rates.
There are around 450 organisations of this kind in the UK. If you’re already a member, you can take out loans on benefits even with a bad credit rating. They’re typically much cheaper than home credit or payday loans due to the interest rate, which is capped at 2%.
Guarantor loans are another option for people looking for bad credit loans while on benefits.
The eligibility requirements for a guarantor loan are looser, compared to loans from banks and credit unions, since they require having a second person who would be responsible for paying back what you owe, in case you can’t keep up with the repayments.
The guarantor can be a relative, family member, or even a brokerage company.
Looking for lenders that service individuals with bad credit scores? Here are some good options:
If you need instant benefit loans but don’t want to pay high interest rates, you can take out a secured loan.
This type of loan is protected by collateral, which is why they’re far easier to qualify for, compared to unsecured loans.
Individuals looking for instant loans on benefits of up to £1,000, might want to consider doorstep loans.
They’re called ‘doorstep’ loans because they can be delivered right to your doorstep (though you can also arrange for the loan to be sent to your bank account.)
The repayment term for these loans is up to 12 months, but they can be expensive because of high-interest rates.
Payday loans are short-term loans that allow you to borrow a small amount of cash and repay it within 2-3 weeks.
Even though they’re suitable for people who need instant cash and you can get payday loans while on benefits, they should be treated as a last resort. These loans have double the standard APR.
Getting a loan on benefits is harder, but there are plenty of options available. The best option is a Budgeting Loan, which is interest-free, but you’ll have to take certain benefits for at least 6 months to qualify.
If you don’t, you can always get a loan from a bank or a credit union provided that you have a good credit score or a regular income, or you could opt for a lender that offers loan products to people with bad credit scores and on benefits.
Crisis loans are no longer available but you could get a Budgeting Loan or a Budgeting Advance from the government.
If you’re getting income-related Employment and Support Allowance or Income Support, you could apply for a Budgeting Loan. If you’re wondering how to get a loan on benefits, all you’ll have to do is apply online.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.