If you are looking for loans on benefits with bad credit, you will be pleased to know that we work with a range of lenders in the UK who will take all circumstances into account. Providing you have a regular amount of benefit paid into your bank account, you might be able to benefit from a loan regardless of your poor credit history.
While obtaining approval for a loan if you are on benefits and you have bad credit, is more difficult than for someone in work with a perfect credit score, we can help to improve your chances of being approved as we work with a panel of lenders.
What Determines A Regular Income?
One of the stipulations made by lenders is that you must have a regular income. This can be confusing; it does not necessarily mean that you must have an income from work. It only means you need to have income coming in each month or a regular amount.
This can be money paid into your bank account each month from such as incapacity benefit, disability working allowance or family allowance. These are by no means the only benefits that lenders consider.
What Additional Criteria Applies to Loans?
All UK lenders will set out certain criteria that people have to meet before they are eligible to apply for a loan. This applies to anyone who wants to borrow not just people on benefits or who have poor credit. Before giving out a loan lenders will want to know:
- You are at least 18 years old;
- You have a permanent address in the UK;
- You hold a bank account in your name;
- You have a debit card and the money for the repayments can be taken from your bank account.
To find this out they will want to know how much you are paid in benefits and when you are paid, for example, every month or every two weeks. They will also need to know how much you have to pay out each month. This includes for such things as rent, electricity, gas and food. The amount of money left over is what the lender calls disposable income and this is the money they would take the loan repayments from each month. This is also how they determine if you can afford the loan.
The Types of Loans on Benefits with Bad Credit You Might Apply For
Some types of loans might be easier to get approval for if you have bad credit than other types. Loans, where lenders do not put too much emphasis on your credit rating, include short term and payday loans. Personal loans may be more difficult to get if your credit rating is very bad, but not impossible, providing you can prove to the lender you can repay the loan.
Payday loans allow you to borrow small sums of money, between £100 and £500 and repay the loan in full the next time your benefits go into the bank. Lenders may also permit you to extend the loan repayment over three of your benefit payments. On the plus side, the monthly sum the lender takes back is less, on the bad side is the fact that you pay more interest over three months.
Short-term loans can be applied for in the region of £500 to £1,000 and the cost spread out for up to 12 months or longer.
Personal loans may be offered with sums of money up to £5,000. As you are borrowing a larger sum of money, lenders will allow you to spread the repayments for up to 36 months.
Will I Require A Guarantor To Apply For Loans On Benefits With Bad Credit?
At Bonsai Finance, we operate as a credit broker, which means that we work with our wide network of lenders in order to find you the best interest rates available for your circumstances. As such, some of our lenders may require you to have a guarantor so that we can find you the most affordable rates. But don’t worry if you don’t have a guarantor; many of our lenders do not require a guarantor, though you may end up paying a higher interest rate without one.
Should I Apply For A Loan While I’m On Benefits?
Whether you should apply for a loan at any point is a very personal question that only you can answer. This is the same regardless of whether you are in work or on benefits, and it is highly recommended that you take the time to decide if a loan is genuinely the best choice for you at this moment.
There are many things that you should consider when deciding whether to take out loans on benefits with bad credit. Several of these, such as eligibility and affordability, have already been mentioned in this article, however, there are other points that should also be considered, such as whether you actually need a loan in the first place.
When deciding to apply for a loan, particularly when you’re on a low income, it is advisable to first look at your current spending to see if you are able to find the money without having to take out a loan. If the item you want the loan for isn’t an necessity, then it might be best to set a little money each month to save up for it and save yourself some money. Most loans, however, are not used on non-essential items, but on unexpected bills, such as car or boiler repairs. These are generally things that cannot wait, and so a short-term loan can be the best option available to you.
Can Getting A Loan While On Benefits Help Me Rebuild My Credit Rating?
As long as you keep up with repayments, taking out a loan while you’re receiving benefits can help you to rebuild a poor credit rating. Once you have paid off your loan then, as long as you haven’t defaulted on any payments, you will find it easier to get credit in the future! You may even find that lower interest rates become available to you, as you have proven yourself to be less of a risk.
Of course, if you find that you are unable to keep up repayments, then you will find that the opposite is true, and that you will find it harder to get credit in the future as your rating has been negatively affected, so it is vital that you keep up with repayments to avoid getting into financial difficulty.
Will Applying For A Loan Impact My Credit Score?
When applying for loans on benefits with bad credit, you may be concerned that a credit search will negatively impact your credit score if you are refused for a loan.
While it is true that a full credit search impacts your credit rating, depending on whether or not you are approved for a loan, many lenders now perform what is known as a “soft search” to see if you meet their eligibility criteria before finalizing the loan offer with a full search. A soft search has no impact on your credit score, as it cannot be seen by any other lender, and so it is generally considered best to get pre-approved for a loan before submitting a full application.
When looking for loans on benefits with bad credit ratings you might want to check out payday or short term loans. We can help to match you with a lender who considers people on benefits with poor credit ratings. Lenders we work alongside will offer some of the most competitive rates on loans, along with numerous loan options and ensure the loans offered are affordable.