What to Keep in Mind Before Taking Out Loans on Benefits
Using your benefits or allowances is a fantastic idea when you need a loan and do not earn money. Although people might consider it an offbeat way of financing themselves, loans on benefits do exist.
Before you take out these loans, you might need to consider the kind of benefits you earn. You might also need to look at your personal finances and repaying capacity. Paying attention to these points will make borrowing free of errors. You do not have to face financial issues in the middle of the term. Read this post and learn more about what you should take care of before you grab a loan of this type.
What Are Loans on Benefits and What to Look for Before Taking out One?
Loans on benefits are personal loans. Therefore, one might call them unsecured. An unsecured loan helps borrowers access money without collateral. If you get loans on benefits from direct lenders, then you might also skip a guarantor or other hassles to get money.
1. Am I Eligible for Loans on Benefits?
If you were not so, then lenders would have stopped designing such loan products. With that being said, you should evaluate the kind of benefits you earn. It can help you understand the loan you want. To be frank, most benefit programs can be used to get cash money in the form of a loan. However, we also need to understand how loans on benefits work.
Nevertheless, you might be thinking about how to repay these loans. You can use it as your alternative income if you do not earn but get benefits allowances. Yes, you need to check how much you get from the benefits program you earn and if that is suitable to repay the loan instalments comfortably. This is where you can use a loan calculator. Or else, speak to a direct lender for more clarifications.
2. What Kind of Benefits Are Accepted as ‘Alternative Incomes’?
Almost all sorts of benefits are accepted as alternative incomes. However, this point still comes into discussion because there are legal regulations for earning benefits. Plus, the lending industry may not approve certain benefit programs.
Regardless of the benefit you get, you must learn that the policies for loans on benefits can change from lender to lender. Of course, there are some generalised rules. But, to be honest, most of the benefit programs will be likely to come in use to get you a loan. The ones counted as income are written below:
- Disability Living Allowance (Today, it is replaced by Personal Independence Payment or PIP)
- Employment and Support Allowance
- Working Tax Credit
- Child Tax Credit
- Child Benefit
- Industrial Injuries Disability Benefit
- Incapacity Benefit
These are mostly the general benefits programs counted as an alternative income for the borrower. You can definitely find your loan using one of these programs. Other programs might also help to take a loan out. Can you have a word with your lender in that regard?
3. Do You Have an Income Scheme Apart from Earning Benefits?
You might earn benefits even if you earn. Such cases are not that rare in the UK, and there are many instances that help you earn a benefit along with a steady income scheme.
As you know, you can get 100% guaranteed loans either on your income or with your benefit programs as your income. But do you know which income can make the loan more affordable for you?
In this regard, speaking with direct lenders transparently may help you with the lending process. A borrower earning benefits may also use his or her income to get an unsecured loan instead. Or, if the amount you want is a pretty high one and you want both incomes to be involved, then you might as well be allowed that too. However, you must have a clear word with your lender, which begins with clarity of your earnings from your end.
4. Take a Look at the Documents Needed
In order to take out loans on benefits from direct lenders, you need to look at the official financial documents you possess. They are written below:
- You have to be aged 18 or above to apply for the loan
- You must be a resident of the UK
- You should have a personal bank account
- You must have authentic and the latest evidence regarding your benefit/ allowance
- An updated credit score (in case you use a credit card)
With these simple documents, the lending process can start quite fast. If you visit the direct lender sites, you will find a paperless application form, which you can fill out easily because little information is required. The next step is to send the documents to let your lenders verify the score for approving the loan, which takes minutes only.
5. Update Your Credit Score
If you use a credit card, then your lenders may need an updated version of the score and the report.
Please note that your loan is not going to be denied even if your credit score is low or very low. Lenders need an updated version of the credit score because it helps them to find the right loan option for you as per the amount you earn through benefits. Lenders are always going to try to make borrowing easy for you. Consider this step as a way to do that.
To Conclude
People on benefits can get more advantages out of these loans. However, you should take your time to safeguard yourself from fraudulent activities. This is why you should do good research to find an authentic private lender. There are loan sharks, too, and you might fall prey to them. As a piece of advice to conclude this post, you can learn about loans on benefits more by doing some homework. Read books, watch videos, speak to someone who borrowed this loan, or simply have a good conversation with your lender. It might open up channels for you to understand this loan better and decide whether or not you want to borrow one.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.
