It is difficult enough finding a loan if your credit rating is poor but what about if you are also on benefits? This leads to the question what are my options for loans on benefits with bad credit?
Well, we can tell you that the lenders we work with will consider all circumstances and they will consider some benefits as a regular income, but not all of them.
Housing benefit, child support, and income support, for instance, are not usually classed as an income by lenders.
Benefits that lenders may class as an income include:
- Incapacity benefit;
- Working tax credit;
- Family tax credit;
- Disability working allowance;
- Severe disablement benefit;
- Family allowance;
- Industrial injuries disablement;
- Income from fostering.
Bear in mind that the benefits we have listed above are only a guide as to the types of benefits lenders may take into consideration. We cannot guarantee any loan for anyone, whether on benefits or not, good or bad credit rating.
General Criteria for Lending
UK lenders do set out some general criteria that anyone applying for a loan has to meet. This criterion includes:
- Loans can only be applied for if you are over the age of 18;
- You must live in the United Kingdom and provide your address when applying;
- You should have a bank account in your name that comes with a debit card;
- The bank account should be able to accept direct debits as this is how the repayments for the loan are made;
- Of course, you also need to have a regular income paid into the bank from either work or benefits that are classed as an income.
All of the lenders we work alongside will want to know how much money you have coming into the household and what you pay out each month. The money left over from this deduction is classed as expendable income as you are not relying on it to pay bills or live on. This money could be used to repay the loan.
All lenders will make this check, as it would be unethical of them to lend you money if you had no means of repaying it.
Loans on Benefits with Bad Credit – The Choices
So, what are the different types of loans offered to people with a bad credit rating? Well, there is no specific loan for people with bad credit. Anyone can apply for any type of loan regardless of his or her credit rating but some types of loans are easier to be approved for than others are.
Generally, the easiest types of loans to find approval for are those offering just a small sum of money, which is repaid back quickly. These include the payday loan and short-term loan.
Payday or Short-term Loan? Which Is Most Suitable?
If you have met with a financial outlay that you had not planned for, you need money fast and you only want to borrow between £100 and £500 a payday loan might be the most suitable for your needs.
While payday loans are generally considered for emergencies you could, in fact, apply for one for any reason. However, it is important to ensure that the loan is affordable as they can be an expensive way of borrowing if you find you have to roll the loan over, as you cannot afford the repayment.
Payday loans may be paid back in full when your next payday comes around or the loan can be spread for up to three paydays. As this is only a short-term loan, the interest is added to the amount borrowed daily. This means the faster you repay it the less interest you will pay.
If you are looking for loans on benefits with bad credit, you might want to consider a short-term loan. This is a similar loan to the payday loan but most lenders will allow you to spread the loan out for up to 12 months and borrow a sum of money in the region of £500 to £1,000.
The amount of interest added onto the loan would be dependent on the APR, the annual percentage rate, and this might differ between lenders. If you have a poor credit rating, you can expect to pay a higher interest rate than someone with an excellent credit score might do.
However, we do work with a panel of lenders in the UK who offer some of the lowest rates of interest based on your circumstances.
When comparing APRs on loans the lowest rate usually incurs the least amount of interest.
You might also want to check any additional terms of the loan. Sometimes lenders will add in an early repayment fee. This is a sum of money you would have to pay if you found yourself in a position to clear the loan earlier than anticipated. If there is an early repayment clause, any savings you might make on interest may be wiped away.
Personal Loans – Borrow up to £5,000
Personal loans do allow the borrower to lend up to £5,000 if they are approved but it is more difficult to find approval for a large sum if you have a bad credit rating.
Lenders will consider your application, including whether they think the loan is going to be affordable but as you are asking to borrow a larger sum of money, they will also check your credit score more deeply that had you applied for a small loan.
Check and compare for the lowest APR on personal loans. The annual percentage rate is the rate of interest that will be added to the loan over the loan each year. For instance, if you take out a loan with 34% APR this is the percentage added to the amount you borrowed over the year. The lower the rate the less interest will be added onto the loan.
Also, check if the APR is fixed or variable. A fixed rate of interest means the interest will remain the same so you know exactly how much the loan repayments will be. A variable means they fluctuate so you could end up paying more in interest if the interest rate rises.
We do not offer loans ourselves, instead, we work alongside a panel of lenders from the UK who offer some of the most affordable rates in interest for loans. The lenders we work alongside offer numerous loan options, along with ensuring the loan is affordable and consider your current circumstances along with your credit rating.
Applying for loans on benefits with bad credit is easier with our help as if a lender cannot offer you a loan we will move onto the next. You only have to make a single loan application to be able to search with numerous lenders and you get an instant decision.