If you’re on Universal Credit, in receipt of benefit, your options for loans may be limited. There are still many lenders that offer loans for benefits claimants, though the terms might be a little different.
Universal Credit can have an impact on your chances of loan approval. Being on benefits is a sign that you’re on low income or no employment income at all. If you’re out of work or not earning enough to cover your living costs, lenders will often assume that they’re unlikely to get their money back.
Loans: What Is Universal Credit?
If you’re in receipt of Universal Credit, it helps to know what this benefit covers. Universal Credit has replaced several older benefits including Child Tax Credit, Income Support and Housing Benefit. Income-Based Jobseeker’s Allowance (JSA), Employment and Support Allowance (ESA) and Working Tax Credit are also under this umbrella.
With Universal Credit covering so many different benefits, lenders can’t tell exactly why you’re getting money from the government. They need to make some assumptions, though they’ll typically assume that you’re not earning much money and may rely on your benefits for living costs.
Loans Available on Universal Credit
Being on Universal Credit, having low income or no income at all, will have an impact on what loans you can apply for. You’ve likely got a poor credit rating, which will add to your problems finding loans.
In most cases, if you’re in receipt of benefits, you’ll need to look for bad credit loans. Approval rates are lower and interest rates are higher, so if you manage to get a loan it’ll probably be very expensive.
Applying for a loan on Universal Credit isn’t particularly difficult. In place of proof of employment income, you’ll be asked for your benefits statements. Just as with any other loan application, you’ll need to show that your income is higher than your outgoings.
To improve your chances of approval, you should spend some time looking over your budget. Cut your costs and outgoings wherever you can. You may not be able to increase your income, but you can reduce the money going out.
Risks of Loans on Universal Credit
When you borrow money there are always risks involved. Anyone can find that their income drops or stops. Anyone can face a financial emergency that takes away their money unexpectedly.
We all think we can keep up with loan repayments, but many get a shock if their car breaks down or the washing machine stops working. There are many things in life that we struggle without and might need to replace fairly quickly.
If you miss loan payments, you’ll damage your credit rating. You may be chased for the debt and your costs will begin to mount up. Your debt gets higher and higher, making it harder to manage.
If you’re on Universal Credit, your income is dependent on the Universal Credit system. This adds an extra challenge, as you’re not in control of when your money reaches your bank account. Universal Credit payments can change without much warning, so you should be sure that you can repay your debt even if your income is delayed. You’ll also have less disposable income, which means paying for these hardships can be trickier to arrange even with support.
Loan Types on Universal Credit
If you’re in receipt of Universal Credit, you’ll probably need a short-term loan for a relatively small amount of money. Bad credit loans and payday loans are probably the first loans you’ll think of.
Bad credit loans, and payday loans, are some of the easiest to get. These are unsecured loans, so your other belongings aren’t at risk. Payday loans have high interest rates, though the industry is regulated so you’ll never pay back more than double what you borrowed in the first place. Also, many payday loan providers will require proof of a stable income.
You might also like to look into crisis loans, specifically for people on benefits. Even better, skip the loans completely and see if you’re eligible for any kind of emergency grant. For people on benefits, financial support could come in non-repayable forms.
A Budgeting Advance, provided by the government, could help with emergency costs. These can be used to buy appliances, clothes or costs linked to applying for jobs. They can also cover other costs like moving house, paying rent or emergency travel.
These government loans don’t have interest added, so you’ll only pay back what you borrowed and it’ll be repaid through your Universal Credit. It may be best to use a Budgeting Advance to clear other outstanding debts elsewhere.