Our Guide on Loans for People on Benefits

The clock ticks away, your bills are mounting, but your benefits aren’t stretching as far as they used to. You’re not alone, as many UK residents find themselves needing emergency cash when their benefits can’t make ends meet.

But you may wonder whether you can even qualify for loans if you’re receiving benefits. Rest assured, some lenders may be willing to work with applicants who receive benefits.

In this detailed guide, you’ll discover if loans for people on benefits are attainable, how to secure one, and what other avenues you might explore. Our aim is to equip you with the knowledge you need to make sound financial decisions.

Can I Get a Loan While on Benefits?

Qualifying for loans while on benefits is definitely on the table, but there are variables to consider. In many cases, lenders do see benefits as a legitimate form of income, making you eligible for loan consideration. However, it’s important to note that not all lenders operate the same way. Their evaluation criteria can differ, impacting your loan terms and eligibility.

Hands holding UK money

The type of benefits you receive will play a part in the lender’s decision. Some benefits are viewed more favourably, affecting how lenders assess your financial stability. For instance, being on a long-term benefit could boost your eligibility for reasonable loan terms. On the flip side, short-term benefits may make the loan application more complex, resulting in terms that aren’t as advantageous.

Where and How Can I Get a Loan?

Getting loans while on benefits is more than just signing papers with a lender; it’s a series of carefully planned steps that can significantly impact your financial future. Let’s guide you through each phase to help you make a sound decision.

  1. Assess Your Needs: Know the amount you need and what you can repay. Calculate your minimum requirement, considering your monthly income and regular outgoings to ensure you can meet repayments.
  2. Research: Don’t settle for the first lender you contact; do your homework. Interest rates are a key factor, but don’t overlook other aspects like additional fees, loan term lengths, and repayment options.
  3. Verify Lender Credentials: Check that the lender is licensed by the Financial Conduct Authority (FCA). This ensures you’re working with a reputable company and provides an added layer of consumer protection.
  4. Application Process: After choosing a lender, you’ll complete an application, available online or in paper form. The form will request details like your name, address, income, and expenses. Be accurate, as incorrect information could result in immediate denial and harm your credit score.
  5. Wait: After applying, expect to wait as the lender reviews your financial history and employment details. The lender will also conduct a credit check. Depending on the lender, this period can range from a few hours to several days.
  6. Review and Accept: Once the lender has reviewed your application, you’ll receive a decision. If approved, read the loan agreement very carefully. This document outlines the loan terms, including the interest rate, repayment schedule, and fees. Make sure you understand and agree with all the terms before you sign.

Do not overlook the loan terms, especially the interest rates and repayment schedule. Some lenders might approve your application but at a much higher interest rate, making the loan more challenging to repay.

Which Benefits Count as an Income?

Not all government assistance programs qualify as income. Lenders vary in how they assess benefits, with some considering it income and others not. Generally, lenders consider the following benefits as income:

Keep in mind that this list serves as a general guideline. Individual lenders may have their own specific criteria or requirements when evaluating your eligibility for a loan.

Which Benefits Do Not Count as an Income?

While many types of benefits may count as income, lenders are less likely to accept other forms. This is because their temporary or conditional nature can make them less appealing to financial institutions assessing your loan repayment ability. These benefits generally include:

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

Though having these benefits won’t automatically disqualify you, they may not bolster your application unless complemented by other, more stable income sources.

Eligibility Criteria

When considering a loan while on benefits, you must meet the universal eligibility criteria lenders usually require.

Loan agreement paperwork

These are basic prerequisites that apply to nearly every loan application, regardless of your source of income.

  • You must be at least 18 years old
  • You must be a resident of the UK
  • You must have a UK bank account

However, most lenders often have additional common requisites for people on benefits, such as:

  • Type of Benefit: Many lenders consider certain benefits a valid form of income. However, the kind of benefit you’re on can impact your eligibility. For instance, long-term benefits like Disability Living Allowance are often more readily accepted than short-term benefits like Jobseeker’s Allowance.
  • Minimum Income: Some lenders require a minimum monthly income for loan eligibility. This amount varies by lender and the requested amount but expect figures ranging from £500 to £800 per month.
  • Credit Score: While a perfect credit score isn’t always necessary, lenders will still determine eligibility based on your creditworthiness. A higher score is preferred as it can increase your chances of approval and result in more favourable terms and rates.
  • Loan Guarantor: In some cases, lenders might require a guarantor, especially for larger loan amounts. This person vouches for you and takes on the repayment responsibility should you fail to make payments.

Is a Guarantor Needed?

Whether you’ll need a guarantor for a loan while on benefits depends on the lender. While a guarantor could boost your chances of approval and potentially fetch you a more favourable interest rate, numerous lenders don’t mandate a guarantor.

In particular cases, especially if you’ve had credit issues, lenders may ask for a guarantor as additional security. Having a guarantor with a good credit score can increase your chances of qualifying for the loan and possibly securing low-interest rates.

However, the guarantor will be liable for the loan if you fail to make repayments. In the event of a default, the guarantor’s credit could be damaged along with yours.

How Much Can Someone Hope to Borrow?

The amount you can borrow while on benefits varies widely, from a few hundred to several thousand pounds. Lenders consider your benefit income and other financial factors like additional income, existing debts, and credit score when assessing loans for people on benefits.

They’ll also examine your monthly expenses and other financial commitments like rent and bills. All these factors help determine your eligibility and the loan amount that won’t jeopardise your financial health.

What Are the Likely Terms for Repayment?

Repayment terms can vary based on the lender and your financial situation, generally ranging from six months to several years. The loan amount also impacts these terms.

For instance, loans under £1,000 often have terms of three to 12 months. If borrowing between £1,000 and £2,500, expect repayment options of 12 to 36 months. For loans between £2,500 and £10,000, terms could range from 12 to 60 months.

It’s worth noting that the Annual Percentage Rate (APR) can vary significantly. On average, you might find APRs ranging from as low as 3% for secured loans up to 100% or more for some forms of short-term or payday loans. These rates are subject to change and can significantly impact your total repayment amount, so it’s an essential factor to consider when reviewing your options.

Types of Loans Available for Benefits

Contrary to popular belief, people on benefits may qualify for emergency loans. Here are some of the most common types of loans for people on benefits:

Short-Term Loans

As the name suggests, short-term loans are small-dollar loans that are repaid fairly quickly – often within two weeks to a few months. Loan amounts range from £100 to £2,000, offering quick access to cash for urgent expenses.

Loan bag, hourglass, and graphs

Typically, short-term loans come with more flexible requirements, which may include lower credit score minimums. However, quick access to funds and lenient requirements come at a price. Short-term loans typically have high-interest rates – often in the double or triple digits.

Instalment Loans

If you’re on benefits but need a larger sum of emergency funding, instalment loans might be a better alternative. Loan amounts can vary from £1,000 to £25,000, with interest rates in the double digits. One feature that sets instalment loans apart is the repayment structure – loans are paid back in equal monthly instalments.

Rather than pay a lump sum, borrowers can split payments into smaller amounts and repay over several months or up to a year. Also, like short-term loans, lenders may have more flexible requirements for instalment loans.

Guarantor Loans

If you don’t have stellar credit, you may be searching for bad credit loans on benefits. One option to increase your likelihood of loan eligibility is to apply with a guarantor. Ideally, you should choose a guarantor who has a high credit score to co-sign the loan with you.

When applying for a loan with a co-signer, lenders will assess your eligibility alongside your guarantor’s. If your guarantor has a high credit rating, that can reflect positively on your application, which may result in lower rates or higher loan amounts if approved.

If you are eligible with a guarantor, you may be able to secure a larger loan amount – around £1,000 to £10,000 with lower interest rates. However, keep in mind that interest rates vary depending on your creditworthiness and your guarantor’s. Typically, guarantor loan interest rates range in the double digits.

While a co-signer can increase your chances of qualifying for a loan, you should be aware of the potential risks. If you fail to make payments, your guarantor will be responsible for repayments. Should you default, your guarantor’s credit score will be impacted alongside yours.

Secured Loans

Another option, if you’re searching for loans for bad credit and benefits, is a secured loan. When applying for a secured loan, you will pledge an asset, such as your car. The car will act as security for the lender, lowering their lending risk.

If you qualify, the lender will typically loan 25% to 50% of the asset’s appraised value. Since secured loans are backed by collateral, interest rates tend to be in the single or lower double digits.

Title loan application

However, secured loans come with the risk of losing your collateral. If you default on the loan, the lender can repossess your collateral and sell it to recoup their losses.

Alternatives to Consider

If you’re on benefits and need emergency funding, loans aren’t your only option. Below, we delve into various government assistance programs and non-interest options that you might find suitable for your needs.

Government Budgeting Loans

An interest-free borrowing option for emergency funding is a government budgeting loan. These loans are offered by the Department for Work and Pensions (DWP) and are available to low-income individuals who are on benefits. Budgeting loan repayments are interest-free, and they are automatically deducted from your future benefits.

To be eligible, you must have been receiving means-tested benefits like Income Support, Pension Credit, or Jobseeker’s Allowance for at least six months. Budgeting loans are designed to help cover essential expenses like clothing, maternity costs, rent, or funeral costs.

Budgeting loan amounts are determined on a case-by-case basis, depending on the financial situation of the applicant. For single individuals, the maximum amount is £348. For individuals or couples with children, the amount is £812.

Charitable Grants and Trusts

Another funding option that doesn’t require repayment is seeking assistance from charitable organisations. These institutions assist individuals in need by providing them with money, services, or products for household expenses, bills, or groceries.

While each charitable institution has its own qualifications, individuals will generally need to be low-income or in financial need. You can search for these opportunities on websites such as Turn2us or The Grants Search, which filter options based on your specific needs and location.


Choosing the right loan while on benefits is manageable when you’re well-informed. Each option, whether traditional or alternative, has its own advantages and drawbacks.

Always understand the repayment terms and consider how the loan fits into your overall financial picture. With careful planning, you can find a loan that meets both your immediate needs and long-term goals. Knowledge is your most valuable asset, so continue educating yourself and consult experts when needed.