Can you borrow while on benefits?
If you're looking for a loan on benefits your options are limited but there are lenders out there. By receiving benefits you'll naturally be seen by lenders as high risk in comparison to those in full-time employment or receiving a steady income. Due to the higher risk you pose as a borrower you can expect to pay a higher rate of interest but this doesn't mean you shouldn't hunt for the best deal. Use our benefit loans comparison table to compare your options as rates can vary drastically from lender to lender. To access the best rates in this bracket see if you can find yourself a friend or family member to back your loan as a guarantor.
Compare your options
When applying for any type of finance it’s absolutely crucial that you ensure you match the lender's criteria before you apply. For example, applying for a bank or supermarket loan with market leading rates will almost always result in you getting declined. Instead, use our benefit loans comparison table to compare your options. If you require more information on a specific lender, visit our benefit loans product library.
How much can I borrow with a benefit loan?
To reduce some of the risks, the loan amounts available to people on benefits tend to be lower than they would be otherwise and this can often be under £1,000. The smaller the loan amount the more manageable the monthly repayments will be, and in the end, the total amount paid.
What sort of interest rates should I expect?
Interest rates will be high. It’s not uncommon to find APRs that are around 50% APR, and many loans can be much higher than that. The high-interest rates can mean a big difference in monthly repayments and the overall amount repaid, so shop around the market and do your research to find the lowest rate possible. You should be able to get an overview of how much your monthly repayments will be and how much you will pay back in total. This can be a better way to see the amounts involved rather than just looking at the APR.
As with most loans, the term will be decided on your personal circumstances and the loan amount. If the interest rate is very high it’s in your best interests to repay the loan as quickly as possible to avoid a larger total amount.
Will there be any other conditions?
To balance the lower income a lender might want further guarantees that the loan will be repaid. It might be necessary to find a guarantor - someone who will promise to take on the debt if you are unable to pay. Arranging these conditions can take time so start planning early as you will have to talk with a guarantor and complete the required paperwork. If you are securing the loan in any other way, like a car, there will be paperwork to do there too.
How soon will I get the loan?
Be careful about rushing to get a benefit loan. If possible, leave yourself plenty of time to research the options available. You should also spend some time looking at your budget and how monthly repayments will fit into that. The actual application might only take a few minutes but you need to have all the information ready. This will then be checked, and it could be several days before it is approved depending on the lender. You should be given an idea of the timescale when you apply. Most of the work is done before the application but it is very helpful work to do.
How much work is involved in getting a benefit loan?
Potentially, quite a lot. You will need to be prepared to do a lot of research and spend time before applying talking to possible guarantors or making other preparations. You should also spend time thinking about your budget and how much you can spare each month for the loan repayments. Lenders might want to sell you on how quick and simple the process is but you should still expect to spend some time and energy getting it organised.
Mark joined Choose Wisely in 2015. He continues to work in close contact with the providers, brokers and journalists operating in the world of consumer credit.