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Can you get a loan if you are receiving benefits?

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We all have times when we could do with some extra money, whether it’s for emergency repairs or home improvements. Often people will turn to a loan company. However, if you’re in receipt of benefits it’s not always that easy. What options are available to you if you require a loan and you’re on benefits?

Budgeting Loans

This is the cheapest and safest option for those on certain benefits. The loans are interest free, but can only be used for essential items, such as paying rent, buying furniture or clothes or paying off hire purchase debts. The minimum loan is £100 and the amount you receive will depend on your circumstances, if you can afford the repayments and if you have any savings. In order to be eligible you need to have been receiving Income Support, income-based Job Seekers Allowance or income-related Employment and Support Allowance for at least 26 weeks.

Credit Unions

Another good choice if you’re on benefits is to use your local credit union. Their decision to lend is not based on your credit history or income, but you must already have a savings account with them before they’ll accept you. This isn’t a quick fix option, but if you are eligible the rates are generally lower than you’ll find elsewhere. Credit unions lend money to members based on the savings from everyone. Therefore, the amounts they’re able to lend can vary, depending on how much is currently being saved.

Loan Company

If you’re receiving benefits most major banks and high street lenders won’t accept you. There are more specialised lenders who will take your benefits into consideration. You will still need to have a fairly good credit rating. However, the interest rates will be much higher than for people in employment.

Loans: Do your research first

Guarantor Loans

Guarantor loans are making a comeback, but there are still very few of them available. They don’t base their decision on your credit history, but they will assess your ability to repay the loan. You will then need someone from your family or a close friend to act as a guarantor. The guarantor agrees to make the repayments if you fail to do so. They must have a good credit rating, be in full time employment and over 18. The rates for these types of loans are still high.

Payday Loans

There has been a lot of bad press coverage about payday loans and their impact on consumers who are struggling with debt. However if you approach them with caution and understand the concept of a short term loan, they can be beneficial. With a payday loan company they lend you a small sum of money, usually under £1,000, and you agree to pay this back when you next get paid. For most lenders you need to have some form of employment, so this is a more suitable option for those on low incomes rather than solely on benefits.

Are you sure you can afford a loan?

As with any financial commitment, before you consider taking out a loan you should decide whether you actually need the money and if you can afford the repayments. Then look at all the options available to you and decide on the one that suits your circumstances.

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About Catherine Stern

About Catherine Stern

Catherine Stern is a freelance writer with a background in marketing and PR. She currently writes web content on a range of subjects, from finance and business to travel and home improvements. As a working single mum of two young boys she understands the pressures that today’s working parents face and the topics they want to read about.

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