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How to Get a Loan On Benefits?

Written by, Marija Petkova

Updated July, 21, 2022

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.

Can You Get a Loan On Benefits?

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.

What Do Loans For Benefits Cover?

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:

  • furniture or household items (ex. washing machines)
  • clothes or footwear 
  • rent in advance 
  • moving house costs 
  • home-related improvements, maintenance, or security
  • travelling costs within the UK
  • new job costs 
  • maternity costs
  • funeral costs 
  • repaying hire purchase loans 
  • repaying loans related to the above-mentioned items

What Are The Eligibility Criteria To Get A Loan On Benefits?

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:

  • Income Support
  • income-based Jobseeker’s Allowance
  • income-related Employment and Support Allowance 
  • Pension Credit 

You’re not eligible for a Budgeting Loan if:

  • You get either ’new style’ Jobseeker’s Allowance or ‘new style’ Employment plus Support Allowance.
  • You’re involved in the industrial strike (ex. strike, walkout, or lockout).
  • You owe more than £1,500 in total for Crisis Loans and Budgeting Loans.

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:

  • Personal Independence Payment
  • Incapacity Benefit
  • Child Tax Credit
  • Child Benefit
  • Working Tax Credit (known as Universal Credit)
  • Fostering Allowance
  • Employment and Support Allowance (previously known as Severe Disablement Allowance or Incapacity Benefit)
  • Industrial Injuries Disablement Benefit

Benefits that don’t count as income include:

  • Housing Benefit
  • Income Support
  • Job Seeker’s Allowance
  • Pension Credits

Can I Get A Loan If I’m On Universal Credit?

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.

Can You Get a Loan On Disability Living Allowance?

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.

How To Get a Loan On Benefits?

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: 

  • A text message or email (takes 7 days for a decision to arrive).
  • Letter (takes 21 days).

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.

Will I need a guarantor for a loan on benefits?

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.

How Much Can You Borrow?

You can borrow a minimum of £100 and up to:

  • £348 if you’re single.
  • £464 if you have a partner.
  • £812 if you or your partner claim Child Benefit.

How much you can borrow also depends on whether:

  • You can repay the loan.
  • You have savings of over £1,000 (or £2,000 if both you and your partner are 63 or older).
  • You’re currently repaying a Budgeting Loan.

How Does The Repayment Work?

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.

Alternative Options For Budgeting Loans

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 Union Loans

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 

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:

Secured Loans 

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.

Doorstep 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 

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.

Financial government support alternatives:

  1. A hardship payment
  2. A Personal Independence Payment (PIP)
  3. A discretionary housing payment
  4. A short-term benefit advance 

Bottom Line

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.

Frequently Asked Questions And Their Answers

How do I get a crisis loan from DWP?

Crisis loans are no longer available but you could get a Budgeting Loan or a Budgeting Advance from the government. 

Can I get a loan if I’m on ESA?

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.