We use cookies to optimise our site and allow us and 3rd parties to tailor ads you see on sites. By using this site you agree to our cookie policy

LearnBonds UK

Best Benefit Loans for Unemployed 2020

Loans for people on benefits are hard to come by in the mainstream financial system. But if you are not out of options
Avatar
Author: thadues
Last Updated: April 6, 2020

Best Benefit Loans for...What are loans for people on benefits? Well, they are small credit facilities extended to people who don’t have an income other than the reliefs provided by the UK government.

High street financial institutions like banks don’t easily lend to people on benefits. But the fact that you depend on benefits shouldn’t prevent you from going for a loan when you genuinely need it. Your options are limited, and it shrinks further if they have some bad credit history. All the same, if you look closer, we have many alternative lenders who can assist you.

There are many reasons why prime lenders reject people on benefits. But credit rating and the assumption that such clients can’t pay the loans are on top of the list. Affordability checks are now mandatory as par the Financial Conduct Authority guidelines for lenders.

While observing the FCA’s requirement, specialist lenders look beyond some bad credit history. Your income, which dictates your ability to pay the loan, is their key focal point when considering your application.

Table of Contents

    Best Direct Lenders 2020 for People on Benefits

    Reviewers Choice
    Loan Mr.
    Rating
    Available Loan Amount
    £100 - £2,000
    Available Term Length
    2 and 36 months.
    Representative APR
    49.9% to 1333% APR
    Rating
    Visit Now
    Very Merry Loans
    Rating
    Available Loan Amount
    100 - 2000
    Available Term Length
    12 Months
    Representative APR
    49.9% to Max 1333%
    Rating
    Visit Now
    Heart Paydays
    Rating
    Available Loan Amount
    £50 - £2,000
    Available Term Length
    4 - 36 months
    Representative APR
    49.9% and 1333% APR
    Rating
    Visit Now
    Viva Loans
    Rating
    Available Loan Amount
    £100 - £15,000
    Available Term Length
    2 to 36 months
    Representative APR
    49.9% and 1333% APR
    Rating
    Visit Now
    Loan Shuttle
    Rating
    Available Loan Amount
    £100 - £5,000
    Available Term Length
    2 to 36 month
    Representative APR
    49.9% to 1333% APR
    Rating
    Visit Now

    Some Benefits that qualify as income to lenders

    For sub-prime lenders, it doesn’t matter whether your income is from benefits or not as long as your income can comfortably repay the money. Thus, even if your income is from public benefit programmes, it may still qualify you for a loan. Some examples include:

    • Child Support Payments
    • Disability Living Allowance
    • Disability Working Allowance
    • Family allowance
    • Family tax or working tax credit
    • Housing Benefit
    • Incapacity Benefit
    • Income from fostering
    • Income Support
    • Industrial Injuries Disablement Benefit
    • Job Seekers’ Allowance
    • Pension Credits
    • Severe Disablement Benefit
    • Tax Credits

    You probably have to provide evidence of the qualifying benefits when applying for the loan. A bank statement showing the payments into your account, a letter from the involved agency, or a copy of your benefits book may do you justice here.

    Types of Loans for People on Benefits

    There are lots of options for people on benefits when it comes to credit, ranging from payday loans to instalments. Here are some options for you:

    Payday Loan

    You can always turn to payday loan providers if you receive benefits, but you can’t secure a personal loan. Although their interest rates are exceptionally high, the loan is convenient and easily accessible. You can get between £50 and £500 Payday Loan for people with benefits. Of course, you pay back this money in full with your next benefits cheque. In some cases, though, where the loan is extensively as large as £1,000, you may pay it partially each month for up to three months.

    Bad Credit Loan

    Bad or no credit histories, each of us find ourselves in situations that stretch our finance. But such cases get even harder if you are on benefits. Traditionally, most lenders reserve loans for people with work income and excellent credit histories. But all is not lost as specialist companies are stepping up to fill in the void. You can secure as little as £50 and up t0 £500 bad credit loan for people on benefits. The loans are available to you as a payday loan or installment loan, provided you can prove you can afford to pay it off in time.

    No credit check loan

    When you are struggling to build your credit score, you don’t want anything that would dent your efforts. Unfortunately, when you apply for a loan, lenders carry a credit search. Depending on the type and frequency of the search, your score might suffer. A hard credit check leaves footprints on your credit report, which means other lenders will see your previous credit applications. But some lenders don’t do an in-depth search on your credit history. Such go unrecorded, which means you can quickly get a £500 no credit check loan without compromising your rating if you pay it off in time.

    Loan direct lenders

    You stand a better chance of quickly landing a reasonably fair rate from direct lenders than dealing with intermediaries. Whether it’s a £50 or £500 loan for people on benefit, these lenders save you the troubling of weaving through the maze and the burden of the broker fees.

    Bad Credit No Guarantor on Benefits

    Since you live on benefits, and maybe have bad credit, some lenders might require you to have a guarantor. This guarantor may be a relative, friend, or anybody else, but they must agree in writing to settle the debt if you can’t. That’s a hurdle that you might pass easily. Or you could simply go for bad credit no guarantor on benefits loans. Their providers approve your application without a guarantor and also don’t do a credit check. As such, you eligible for this loan, regardless of your credit history. All you have to do is provide proof of the benefits payments into your account.

    Instant approval

    Apply from £50 to £500 instant approval loan for people with benefits and get approved straight away. Interesting, uh? Yes, the lenders not only accept your credit request on benefits but immediately process it as well. With instant approval loans for people on benefits, the money reaches your accounts in just a few minutes. This kind of credit is suitable for emergencies. The lenders have a unit that quickly screens your application and provide an instant decision. Once approved, no waiting, no nothing, they send the money to your account straight away.

    Instalment Loans

    If you receive benefits, you could still borrow money that suits your needs. From small loans for people on benefits of £50 to £900. Sometimes you can even qualify for more significant amounts of between £1,000 up to £5,000 installment loans repayable on equal monthly or weekly repayments spread up to 18 months. These loans are convenient and manageable as they don’t put too much pressure on your budget.

    How Loan for People on Benefits Work

    Loans for people on benefits are not different from other forms of borrowing. You enter an agreement with the lender about how you are going to settle the loan. The key difference here is that instead of registering your salary or work pay as your source of income, you declare your benefits.

    For example, in the case of a payday loan for people on benefits, you take an advance on your next paycheque. We know, it may take up to five weeks before you get your pay, often paid monthly in arrears. If you have little or no money until the next payment, you can go for a payday loan as an advance payment, which you settle as soon as you receive the money.

    Some benefits, though, are telling of your financial situation. They nearly infer that you have some underlying financial difficulty. Even so, a lender assesses your financial circumstances with the benefits as your income. If it finds out you would struggle to repay the loan, it rejects your application. FCA requires a lender to carry out affordability checks before giving out funds so that the loan doesn’t push you into a debt cycle.

    Some lenders will allow you to request up to a full month’s expected payment as an advance. However, you don’t have to pay it off in a one-off payment. Depending on the type of loan, you can spread the repayments over several months. But it is advisable only to claim as much as you need since you have to repay it.

    Eligibility for Loans for People on Benefits

    Acceptance criteria for a loan on benefits vary from lender to lender. But there are bare minimums, apart from demonstrating that you can comfortably afford the repayments. These conditions include:

    • Be a UK resident.
    • Be over 18 years old.
    • Have a valid UK bank account
    • Must proof of benefits (benefit book, agency letter, or bank statements)
    • Must not be bankrupt
    • Must provide a valid bank account with a debit card
    • Must agree to credit and affordability checks

    You may also need to provide a valid mobile number as well as an email address that the lender can reach you. But you may not need to provide an email address if you are applying for this loan at a local outlet.

    Note: Benefits that qualify as income varies from one lender to another. Ensure the lender accepts the benefits you are on as a qualifying income.

    How to Repay Loans for People on Benefits

    Before you receive the loan, your provider must serve you with a loan contract that declares the amount you borrow, the respective representative annual percentage rate (APR), the due date, and all the applicable fees. It is this document that will dictate how you repay the loan.

    Like all short-term loans, lenders to people on benefits use continuous payment authority (CPA) to collect the payments directly from your bank account. But you can agree to a different repayment schedule, where you’ll be required to submit the payments manually ahead or on loan due date.

    How CPA Works

    To employ the CPA method, the providers need your bank account and debit card details and authorisation to withdraw funds from your account.

    But at least a day ahead of the automated electronic withdrawal, they will send you a reminder. This notice is to allow you to make arrangements for the funds if they are not yet available in the account. Otherwise, you can suffer overdraft charges if you don’t have enough funds.

    If the collection attempt fails, they notify you before they make a second attempt again the following day. A second failure may spell trouble for you, as the lender may levy the late payment penalty afterward.

    If you have already settled the loan manually using other sources, then you can go ahead and cancel the CPA. It’s not just that. You can cancel your CPA at any point in time by notifying the lender or your bank.

    It is advisable to pay off the loan as quickly as you can, and if you are in a position to repay it ahead of schedule, then that’s great! Early repayment saves you money in fees and interest, easing the pressure on your budget. However, not all lenders allow early prepayment, so be sure your lender has no restrictions on early pay-off.

    And while most borrowers are not comfortable with CPA, it is the best way to settle the loan without any stress. You don’t have to remember the due loan date as long as you are confident your benefits will be in the account ahead of schedule. Besides, FCA abiding lender can never collect more than the total amount payable, and they only do it on the specified date.

    It’s better to talk to your lender when, for one reason or another, you can’t pay the amount due. Most lenders will roll it over, extending the repayment period, but at your cost. That’s why you need to be very considerate when choosing your lender for loans for people on benefits.

    Factors People on Benefits Must Look for in a Lender

    While people on benefits, particularly those with bad credit, struggle to get loan opportunities, it doesn’t mean that they can jump on the first chance that presents itself. The procedures to choose the best loan remains the same. The fact that you don’t have a work income should not let you suffer any additional cost, nor should your less-than-stellar credit rating.

    To land the best lender, ensure it meets the following:

    • It is FCA accreditated
    • Provides no-obligation quote to determine affordability.
    • Affordable loan
    • Provides manageable and affordable repayment schedule
    • Instantaneous approval decision
    • Timely fund disbursal
    • Considers bad credit
    • Has no early repayment restrictions
    • Has local outlets
    • Convenient online application
    • Provides loan tracking and management tools
    • Allows you to restructure your loan

    Alternative Loan Options for People on Benefits

    If you can’t contend with the restrictions of short-term loans for people on benefits, you can always evaluate other avenues.

    It’s all about the lender feeling more secure, granting you a loan. The lender may ask you to present something as collateral for the amount you borrow or have someone step in as your guarantor.

    Here are some options that may be a little relaxed:

    1. Secured loans –Putting your asset in line means you forfeit it if you fail to pay the loan as agreed. The introduction of security reduces the risk associated with your loan. Some assets you may use include your home equity, car, or machinery. You must, however, pay the amount you take in time or risk losing your asset.
    2. Log Book Loans – It is a form of a secure loan, but here you precisely take the loan against your vehicle. You hand over your car’s logbook or registration document until you settle the loan. Failing to pay this loan may mean you forfeit this particular asset.
    3. Guarantor loans – Lenders reluctant to accept your application because you are receiving benefits, which to them may be low or not stable enough, may want you to bring in a guarantor. In this case, the guarantor accepts liability if you’ve failed to do so. The guarantor gives the lenders a more sense of security, so you can secure deals that would have otherwise remained out of your reach.

    To save you the trouble, you can talk to specialist lenders who specifically target people on benefits and those who have a poor credit history or low income.

    How do I apply for a Loan for People on Benefits

    Let’s say you need a £500 loan for people on benefits. You’ll need to figure out how quickly you can repay it. That way, you won’t hold it long enough to accrue too much interest and fees.

    With the duration and amount, you can get the right quote, which you can use to compare the affordability of different lenders. If you intend to hold the loan for a few months, then it is best if you go with a £500 installment loan for people on benefits. However, if you intend to settle it at the end of the month, you can choose a payday loan.

    These loans are not limited to online applications. Some lenders have local outlets that you visit and submit your form conventionally. But the online application is convenient, as you can do it at the confines of your home, given the current COVID-19 crisis.

    A lender requires you to submit your details, which encompass your benefits agency and the amount you receive each month. You may also need to input your monthly expenses, to help the lender ascertain the affordability of the loan.

    Afterward, you can enter the amount, in this case, £500, and the period of the loan. And that is it!  Wait for your lender to process your loan. If it is a £500 instant approval loan, you’ll have a decision in a few minutes. Otherwise, the decision may take under an hour, and 48 hours for the money to land in your account.

    Pros and Cons of Loans for People on Benefits

    Pros

    • Benefit advance enables you to access part of your benefits early, even if there are delays.
    • They have fewer requirements, no need to explain what you intend to do with the money.
    • They are unsecured loans, even to those with bad credit.

    Cons

    • Most of these loans don’t help you build credit
    • They are costly and can easily trap you in a debt cycle
    Note: Loans for People on benefits will often exhibit features of payday loans. So, regardless of the name they give them, you’ll be using a payday loan lender.

    Loans for People with Benefits – Verdict

    Loans for people on benefits is not a field with many providers. Credit facilities traditionally remain a reserve for the employed or those with work income and enjoying excellent credit histories. The truth, however, is, work income or not, we all find ourselves in situations where our money doesn’t stretch far enough. Thus, seeking out a loan from a bank, building society, or any other lender remains the realistic option. Thank goodness we have a few specialist lenders that are willing to take a risk on individuals on benefits, and those with poor credit. Such lenders have very few restrictions, and provide loans for people on benefits, regardless of borrowers’ credit histories.

    FAQs

    Can I get a loan while on benefits?

    Yes. Some lenders accept benefits such as Disability Living Allowance, which is permanent or long-term relief. In some cases, they even agree to short term or temporary benefits as well. But there are other factors that the lenders might look at as well. If they deem you fit, you get the loan. What is of primary concern is your ability to repay the loan comfortably.

    Do benefits affect my credit rating?

    No! The benefits have no relationship with your score as they are not loans. Thus, they have no bearing on your loan eligibility. But these reliefs are mostly some sort of aid, and you may not receive them if you are financially stable. That's the primary reason why most lenders have reservations extending loans to people on benefits.

    Can I pay off my installment loan early?

    Yes! However, it depends on the loan contract you signed. You save in terms of costs and interest if you pay off your loan ahead of schedule. But not all lenders allow it. Some will penalise you for exiting the contract early. So, when choosing a loan, ensure the provider offers no penalties for early repayment.

    Is CPA safe?

    Yes! While the lender can access your bank account, they can only withdraw the agreed amount on the agreed date. Also, reputable lenders protect your banking details such that no third party can access them. Besides, you can always cancel your CPA any time you wish, provided you make arrangements for an alternative repayment method.

    ABCDEFGHIJKLMNOPQRSTUVWXYZ#
    Avatar

    Thadeus Geodfrey has been a contract writer for Lernbonds since 2019. As a fulltime investment writer, Thadeus oversees much of the personal-finance and investment-planning content published daily on this site. With a background as an iGaming expert and independent financial consultant, Thadeus’s articles are based on years of experience from all angles of the financial world.