Can I take out a loan if I am on disability benefits?

Can I take out a loan if I am on disability benefits?

It may be possible to take out a loan if you’re on disability benefits.

Regardless of if you are receiving disability benefits, you are eligible to apply for a loan. By law, banks and lenders must treat you the same as any other customer. Therefore, you’re just as entitled to apply for a loan as anyone else.

Those who work and have a regular income, as well as a good credit rating, should be able to find several borrowing options available to them. However, if you have a low income and are claiming benefits, you might find it difficult to borrow from banks and other mainstream lenders. In the event you need to borrow money to cover an unexpected expense, you might be eligible to borrow from a short-term lender.

Loans for people on disability benefits

Before taking out a loan, you should consider your financial situation and decide whether it’s the best option.

If you need a loan to cover bills or expenses, consider speaking to whoever you owe money to, explain your circumstances, and try to set up a repayment plan. Managing money can be hard. Take a look at our money management page for hints and tips on budgeting. You can also learn more by visiting Money advice service who provide free independent advice.

Those who get Employment and Support Allowance or Income Support may be able to apply for a Budgeting Loan or Budgeting Advance, which are interest-free and can be repaid with benefit payments. Learn more by visiting the Money Advice Service

Applying for a short-term loan

If you’re unable to pursue these options, a short-term loan could help cover your needs. There are many different short term loans available, and so it’s best to find an option that suits your budget:

  • Payday loan: A short-term loan that you’re expected to pay back in full, usually around your next payday.
  • “Doorstep” or home collected loan: Loan applications are completed at your home and if approved the money will be delivered to  your home. A representative from the lender will visit you weekly or monthly in person to collect repayments in cash.
  • Guarantor loan: A friend or family member is required to act as a guarantor which means they must take over the repayments (or repay the loan in full) if you can’t afford to continue to make the loan repayments.
  • Online loan: Loan applications are completed online and if approved the money will be transferred into your bank account. The repayments will be collected via a Continuous Payment Authority, Direct Debit or other remote payment either weekly or monthly.

Keep in mind, when applying for any type of loan, the lender should carry out affordability assessments to ensure the loan is affordable and sustainable to you. 

It’s also important to keep in mind that, due to the short repayment period, these kinds of loans often come with high APR rates (a high cost of borrowing) – which we explain on our page how do interest rates work

Before you take out a loan, make sure you’re confident you can repay the full amount (including interest) throughout the full length of the loan. Make sure you understand the lender’s key features of the product, including how and what fees are charged for late or missed repayments, what the loan repayments are, what the length of the loan is, what the total repayment amount is, and what the early settlement processes are etc.

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