Can I Get a Loan If I’m on Universal Credit?

Is it possible to get a loan while on Universal Credit

Universal Credit is a Government benefit scheme aimed at offering financial assistance for people whose income is low or who are out of work. In the current climate, the number of people on Universal Credit is rising, many of whom have never been on it before. One question that people ask is whether it’s possible to take out a loan whilst on Universal Credit.

The answer is that the Government has provided various options for anyone on a benefit like Universal Credit who needs emergency money. If you receive Universal Credit, one option is to apply for a Budgeting Advance. People who are receiving other benefits may be able to apply for a Budgeting Loan.

Alternatively, there are some lenders who will consider both unemployed people and those who are on Universal Credit. If you have become unemployed unexpectedly, your finances may be strained. It could be a time when you really need a loan to keep you going, but the low income from Universal Credit could make it harder. Read on to learn how to find lenders that might consider you for a loan.

What Is a Budgeting Advance?

A Budgeting Advance is a financial product designed to assist people who are already claiming Universal Credit. Its purpose is to help you pay for emergency costs that arise, such as replacing a broken washing machine or fridge. A Budgeting Advance can also be used to help you pay for funeral costs, or for when you require some money to get a job (such as paying for training).

The maximum amount you can receive in a Budgeting Advance is £348 if you are single. If you are part of a couple, that maximum rises to £464, and if you have children then it is capped at £812. The amount you are offered depends on whether you have savings above £1,000.

Another thing that will be taken into account is whether or not you can pay back the loan.

A Budgeting Advance is a financial product designed to assist people who are already claiming Universal Credit

What Is the Eligibility Criteria for a Budgeting Advance?

To qualify for a Budgeting Advance, you must meet all of the following criteria. This is according to the Government website:

  • You must have been receiving Universal Credit, Income Support, Jobseeker’s Allowance, Employment and Support Allowance or State Pension Credit for at least 6 months (unless you need the money to stay in work or start a new job).
  • You must have earned no more than £2,600 in the past 6 months (£3,600 combined for couples).
  • You must have paid off any previous Budgeting Advance loans where applicable.

How to Request a Budgeting Advance

You can place the request for your advance through your work coach when you go to see them. You can also make the request through your online account or by calling the Universal Credit Helpline. Please note that the telephone lines have been extremely busy since the start of the COVID-19 crisis so the online option will probably be best.

When you make the request, you will be asked to explain why you need the advance. You will also be required to confirm your identity and provide the bank account details you wish to receive the payment into (if this isn’t already on file).

The decision should be made on the same day you make the request. If you are successful, you should receive the money in your account within 3 working days. If you are in an emergency situation and cannot wait 3 days, it’s possible to have the payment released on the same day.

How Is a Universal Credit Budgeting Advance Repaid?

Repayments are made through your regular Universal Credit payments. The repayments can be made over a maximum of 12 months. Each repayment will be up to 30% of your Universal Credit allowance, so make sure you agree an affordable repayment schedule.

If you apply online, you will be shown the repayment amounts for different repayment periods. This will help you make a decision about how you will repay the loan in an affordable way. If you apply over the phone or through your work coach, they will talk you through the repayment options to help you make a decision.

You will begin making repayments from the first Universal Credit payment you receive after the advance is paid.

What If Your Budgeting Advance Is Refused?

There are various reasons your request for a Budgeting Advance may be declined:

  • You may not have had your ID checked yet
  • You may be deemed to have sufficient funds to last until your next payment
  • You may live with your parents, other relatives or friends
  • You may already have funds from final earnings, redundancy or accessible savings above £1,000

If you feel that the rejection was unfair, you can contact the Department for Works and Pension (DWP) and request that they reconsider. However, you do not have a right to appeal, so you are only likely to be successful if there is an error in their initial decision-making.

Who Gives Loans to People on Universal Credit?

There are lenders that specialise in lending to people with low income. In addition to the Budgeting Advances described above, you may be able to access guarantor loans, benefit loans, low-income loans and credit unions. It will all depend on your current finances and income.

Guarantor loans are probably the main option for anyone who is unemployed. Lenders will require you to provide a close family member or friend to enter the loan agreement with you. You will be liable for the loan repayments primarily, but if you are unable to keep up with repayments then the responsibility will fall to your guarantor. For this reason, it can be tough to find a guarantor, particularly when your income is low and the risk of you being unable to make the payments is relatively high.

Another common option is to take out a secured loan. This means you have to offer some property – such as your car or your home – as collateral against which the loan is granted. This can be a helpful option for obtaining a loan but it is risky. If you are unable to keep up with your repayments, your property could be seized and repossessed so that the lender can sell it to recoup their losses from the debt.

Universal Credit payments are classed as income, so the other options out there are worth pursuing as well.

How to Get a Loan on Universal Credit

No method is guaranteed to get you a loan if you are on Universal Credit. There will always be a journey of applying and hoping for a positive decision from a lender. The process of applying is the same as for someone with a job that provides a good income. However, most high street banks will not consider you for credit if you are not employed or on a very low income. This makes borrowing a challenge for anyone on Universal Credit – but not impossible.

Finding a loan on Universal Credit means applying with a specialist lender. These lenders are not hard to find, but you should be aware that they often charge higher interest rates on loans because they need to offset the risk of lending to someone on a low income. The risk these lenders face in granting loans to people on Universal Credit is that they don’t receive the full amount back due to the borrower being unable to make the payments.

You will still need to demonstrate that you have the means to make repayments each month – this will come in the form of your Universal Credit.

How Do Loans on Universal Credit Work?

A loan for a person on benefits has the same basic mechanics as any other type of borrowing. There will be some variation in the requirements depending on which lender you place your application with. It’s important to check their specific criteria to get an idea of how likely they are to approve your application, but any of the following are likely to be considered:

  • Your age – you will need to be at least 18 years old when you apply for a loan. Many lenders also have an upper age limit, so check this before you apply.
  • Your residency – you will be required to prove that you have been living in the UK for at least 3 years and that you hold a UK bank account.
  • Your credit record – if you have a strong credit file, lenders may be more willing to look past the fact that you currently have a low income. However, a poor credit score could make it difficult for you to get approved. Quick loans with a poor credit score are available in some circumstances, but they tend to come with a much higher APR.
  • Minimum income level – certain loans will not require you to be employed, but you might still need to provide evidence of a regular income that enables you to make the monthly repayments. Include your Universal Credit income and things like investment payouts or interest on savings.
  • Guarantor – if you are on Universal Credit, your income level is low. Many lenders will require you to have a guarantor to secure the loan. If you miss a payment, the lender will turn to your guarantor to make it on your behalf. Guarantors usually need to be employed with a good credit score.

Other Finance Options for People on Universal Credit

There are a couple of other options to explore to get the money you need:

Credit Unions

A credit union is a financial organisation that was not set up for profit. Its members are joined by a common bond, such as their occupation or the area they live in. A credit union pools the savings of its members in order to grant loans to members in need.

Credit unions cap their interest rates so that they provide a safer, more viable alternative to short-term loans. Some credit unions even offer weekly payment plans for certain appliances, and they are usually more cost-effective than the finance plans offered in stores.

A credit union pools the savings of its members in order to grant loans to members in need

It may be possible for you to join a credit union to get the loan you need. However, you should know that some unions require their members to have saved with them for a set period of time before they are permitted to take out a loan.

Weekly payment stores

Pay weekly stores offer the option for customers to buy items on credit and pay for them in weekly instalments. If you need a certain product or appliance urgently, like a fridge or a washing machine, these could be a good option for you. There are brick-and-mortar shops that offer this service, but it may also be possible to buy online.

To open an account with a weekly purchase store, you will need proof of your identity, address and income. Not all of these stores will accept an applicant who is on Universal Credit, but there are some who will (as long as you meet the minimum income requirements). It is wise to be cautious before committing to this option because you will inevitably pay considerably more for the items than you would if you bought them outright. Also, if you fail to keep up with your payments, the item(s) could be repossessed.

Beware of Scams

Claimants of Universal Credit have been the target of scammers claiming to provide low-cost loans or government grants. You may receive a call from someone claiming to work for Jobcentre Plus, or they may reach you through social media adverts. These scammers often create very convincing websites that include testimonials and government logos.

They are likely to ask for your bank details and ID documents. They may also offer to submit a claim for Universal Credit on your behalf, including an application for a Budgeting Advance, and will take a small percentage of this money as their fee. However, advance payments must be repaid in full out of subsequent Universal Credit payments, so it will be you that ends up paying back the full amount borrowed (including the scammer’s ‘fee’).

You should also avoid these offers if you are already in receipt of any of the benefits that Universal Credit is replacing (such as Housing Benefit or tax credits). If you let these people take out Universal Credit for you, your old benefits will be stopped and you may find that your new benefit payments are lower than what you had before.

If you are offered nothing more than a government loan and asked to hand over your identification and bank details, the scammer may be intending to make a Universal Credit application without telling you. Do not give your details because you may not be eligible for Universal Credit and this could be viewed as benefit fraud.

Anyone waiting for their first Universal Credit payment who needs help getting an advance can contact the Citizens Advice Help to Claim Service and they will assist you for free. If you have been targeted by one of the scams we have just described, you can report it even if you haven’t become a victim. Use the Action Fraud online reporting tools or call 0300 123 2040.

Avoid Payday Loans

You have probably heard that payday loans have a bad reputation, and for good reason. Unfortunately, they are often marketed at people on a low income or the unemployed, and people on Universal Credit are right there in the mix.

Payday loans make bold promises to deliver money straight to your account within the hour with very little in the way of credit checks. This sounds appealing, but the terms and conditions are massively stacked against the borrower. The main issue is the sky-high interest rate – if you are unable to make the full repayments within a very tight schedule, you’ll be left having to pay back much, much more than you originally borrowed.

If you can’t afford to make the payments to begin with, it’s highly unlikely you’ll be able to pay off the new balance that appears.

Something Worth Trying

Try talking to your bank first, if you have a good relationship with them. If you have a history of repaying debt on time and not having an overdraft, it could be worth discussing the options they might be able to offer you. You may be able to get a small loan from them.

They may also be willing to offer you a temporary authorised overdraft to help tide you over until you get a job. You may still be charged for an authorised overdraft, but it could be much cheaper than the interest on a loan. Be advised that an unauthorised overdraft will charge you daily until you’re back in the black, so avoid this at all costs.

Try talking to your bank first, if you have a good relationship with them

You could also consider:

  • Borrowing from friends/family
  • Using a credit card
  • Peer-to-peer lending
  • A loan from a pawnbrokers

Get Advice

If you are on Universal Credit and struggling with your finances, it can be a good idea to seek professional advice. The content of this article gives you a general idea of some options available to you, but it is no substitute for tailored, personal advice. Your local Citizens Advice Bureau is a good port of call, and you could also consider the National Debtline or StepChange Debt Charity for free advice.