Loans for people on benefits: your options explained
Written byEmily Tye
Updated:Mar 25, 2026
6 min read
Getting a loan when you receive benefits is possible, but the options available to you depend on which benefits you receive and what your total monthly income is. This guide explains every option available, what each one costs, and what to check before you apply.
Can I get a loan if I'm on benefits?
Yes. Lenders assess whether you can afford to repay a loan based on your total income and outgoings, and for some lenders, benefits count as income. Your options are more limited than they would be for someone in full-time employment, and loans for people on benefits often come at higher cost.
Interest-free government borrowing also exists for many people on benefits – those options should usually be your first port of call.
What types of loans are available for people on benefits?
Budgeting loans and budgeting advances
If you receive certain legacy benefits or Universal Credit, you may be able to borrow money from the government, completely interest-free. These are often the best option for people on benefits because you only ever pay back exactly what you borrowed.
There are two separate schemes, depending on which benefit you receive.
Budgeting Loans are for people receiving Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, or Pension Credit. You must have been claiming one of these benefits for at least six months. If you are on Universal Credit, you cannot apply for a Budgeting Loan and must apply for a Budgeting Advance instead.
Budgeting Advances are for people on Universal Credit who have been claiming for at least six months. This requirement does not apply if you need the money for work-related costs. You must also have earned less than £2,600 in the past six months if you are single, or less than £3,600 as a couple.
Both schemes offer between £100 and £812 . The maximum depends on your circumstances:
£348 if you are single
£464 if you are part of a couple
£812 if you or your partner receive Child Benefit
If your savings exceed £1,000 (or £2,000 if you are aged 63 or over), the amount you can borrow will be reduced by the excess. Repayments are deducted automatically from your benefit payments over up to two years.
Universal Credit new claim advance payments
If you have recently applied for Universal Credit and are waiting for your first payment, a five-week wait is standard. You can ask for an advance payment to cover essential costs while you wait.
This is separate from a Budgeting Advance and is available from the point you make your claim. It is interest-free and repaid through deductions from your future Universal Credit payments over up to 24 months.
Credit union loans
Credit unions are non-profit, community-based lenders regulated by the FCA. They are often more willing to lend to people on benefits than high-street banks, and they assess applications on your ability to afford repayments rather than on credit score alone.
The interest rate credit unions can charge is capped by law at 3% per month under The Credit Unions (Maximum Interest Rate on Loans) Order 2013. In practice, many credit unions charge less than the maximum. This can make them cheaper than other lenders.
Credit unions are membership-based, so you need to join before you can apply for a loan. Eligibility for membership depends on where you live, where you work, or other community ties. Find your local credit union.
Personal loans from direct lenders
Some direct lenders offer personal loans to people on benefits if their total monthly income meets a minimum threshold. The threshold varies by lender, but can be around £800, which is achievable for people receiving certain benefits or a combination of benefits and part-time earnings.
It is worth using a loan eligibility checker before formally applying, as a soft check lets you see your chances of approval without affecting your credit score. If you want to understand how personal loans work before applying, this guide to how loans work covers the key things to know.
Local welfare assistance schemes
Many local councils run welfare assistance schemes that provide one-off grants or small loans for people in financial hardship.
Unlike commercial loans, grants do not need to be repaid. Availability and eligibility criteria vary by council.
High-cost short-term lenders
Some lenders specifically market loans to people on benefits and low incomes, sometimes called payday loans or short-term loans. These are typically available even with a poor credit history, but the cost of borrowing is high. APRs of several hundred per cent are common, and it is possible to end up repaying significantly more than you originally borrowed.
If you do proceed, focus on the total amount repayable rather than the monthly payment, and only borrow what you have a clear and realistic plan to repay.
Which benefits do lenders accept as income?
Lender criteria vary, and there is no universal rule on which benefits count as income. The best approach is to check directly with a lender before applying. That said, some general patterns are worth knowing.
Benefits that may be viewed more favourably, as they are more long-term:
Personal Independence Payment (PIP)
Disability Living Allowance (DLA)
Attendance Allowance
Carer's Allowance
Benefits that some lenders accept but others do not:
Universal Credit
Employment and Support Allowance (ESA)
Child Benefit
Housing Benefit
Benefits that many lenders are reluctant to accept, as they are designed as short-term support:
Jobseeker's Allowance (JSA)
These are general tendencies rather than rules. Individual lenders set their own criteria, and some will accept combinations of benefits even where a single benefit might not meet their threshold alone.
If you receive multiple benefits, lenders will usually look at your total monthly income from all sources combined, including any part-time earnings.
Will taking out a loan affect my benefits?
Means-tested benefits such as Universal Credit take into account your savings as well as your income. For Universal Credit specifically, savings below £6,000 have no effect on your payments. Between £6,000 and £16,000, your payment reduces by £4.35 for every £250 you hold above the lower threshold. If your savings exceed £16,000, you become ineligible for Universal Credit entirely.
If you take out a commercial loan and the money sits in your bank account without being spent, it counts towards your savings and could push you above one of these thresholds. This is not a reason to avoid borrowing, but can be a reason to spend the money on its intended purpose rather than letting it accumulate.
Pension Credit has a different rule. Savings below £10,000 do not affect your Pension Credit entitlement. Above £10,000, every £500 is treated as £1 per week of income, which gradually reduces your payments. There is no hard upper limit that cuts off Pension Credit entirely.
Government Budgeting Loans and Budgeting Advances are already known to the DWP and do not affect your benefit entitlement. Repayments are handled automatically through your benefit payments.
Because the rules vary by benefit type and individual circumstances, it is worth getting advice before taking out a loan. MoneyHelper.org offers free, impartial guidance and can help you understand how borrowing might affect your entitlements.
What should I consider before applying for a loan on benefits?
A few things are worth checking before you apply:
Affordability: Work out what the loan will cost in total, including all fees and interest, and confirm you can meet the repayments from your regular income without creating further financial pressure.
APR versus total repayable: The APR is useful for comparing loans, but the total amount repayable gives you the clearest picture of what the loan will actually cost you.
Soft versus hard credit checks: Every formal loan application leaves a hard search on your credit file, which can affect your score temporarily. Use a soft eligibility checker first where possible.
Government schemes first: Before applying for a personal loan, check whether you qualify for a Budgeting Loan or Advance, local welfare support, or a credit union loan.
What if I'm on benefits and have bad credit?
Having bad credit as well as receiving benefits narrows your options, but it does not make borrowing impossible. Credit unions and lenders specialising in loans for bad credit assess affordability rather than your credit score alone, while Government Budgeting Loans and Advances are available regardless of your credit history.
Improving your credit score over time can also open up better borrowing options. Our guide to increasing your credit score explains the practical steps you can take.
What are the alternatives to a loan if I'm on benefits?
Before taking on debt, it is worth checking whether any of the following apply to your situation.
Grants: Grants do not need to be repaid. Turn2us runs a free benefits calculator and grant search that shows what you may be entitled to based on your circumstances and location.
Council tax support: If you are struggling with council tax, your local council may be able to reduce your bill or arrange a payment plan.
Charities and charitable funds: Some employers, trade unions, and sector-specific charities offer emergency financial assistance.
Talking to creditors directly: If you need money to cover a bill you cannot pay, contact the creditor first. Many will agree to a payment plan or temporary pause, particularly for utility bills or rent arrears.
FAQs
This blog is for informational purposes only and does not constitute financial advice. Please speak to a qualified financial adviser before making financial decisions.
