Last updated on February 1st, 2020
If you’re in a low-income household, with part or all of this coming in from benefit payments, you may have had a tough time finding further borrowing. With many lenders reluctant to lend to anyone currently out of work or on a low income, the options can seem limited. Whether you’re on income support or receiving child benefits, you’ll be pleased to know there are some lenders willing to help you. Maybe you need to pay for urgent repairs on a car or your home such as a boiler failure. You’ll need to know what your options are and where is best to look. Here, we’ll break down how you can get the loan you want.
Income Support Loans
If you’re on a low income due to short hours at work or currently unemployed seeking work, you may already be receiving a form of income support. If you can cover your monthly outgoings and have some money left over, you may be able to get an income support loan to help. This type of loan is designed to consider your credit rating may be low and affordability at a minimum. Because of this, you’ll find the amounts you can borrow will not be too large, as the lender will not want you to fall into further financial difficulty.
A budgeting loan can be applied for to help pay for essential costs. This type of loan is provided directly from the government and can also be referred to as crisis loans. This type of loan will normally only be available to you if you have been receiving benefits for 6 months or more and your situation has not changed. The types of costs it’s designed to cover include furniture or household items, paying rent in advance or maternity costs. These are not available to everyone, but if approved, you will only pay back what you have borrowed, and the repayments are automatically taken from your benefits. This means you won’t have to worry about keeping up with repayments manually and avoid missed payments and charges associated with this.
As your credit rating will usually be low due to having a low income, or if you have a bad credit history, having a guarantor to co-sign a loan agreement is a great option. Guarantor loans will usually involve someone who has a good credit rating compared to your own, is in full-time employment and has plenty of affordability. Some lenders who offer the option of a guarantor on a loan may have additional requirements, such as a minimum age of a guarantor or even a maximum age. These types of loan can be a much lower risk for a lender, meaning a higher chance of approval for you. The guarantor would be responsible for making repayments if you were unable to, so whoever you choose to co-sign would need to be prepared to do so.
Make Small Changes to Your Credit Report
It’s advisable to take a look at your credit report whilst you’re receiving benefits. This is because you may find some things affecting your score can be easily rectified. For example, you may have incorrect address information recorded on your file, making it difficult for the lender to see your address history. Taking the time to update this correctly can make a big difference. The same with any associations you may have with lending in the past. For example, you may have had a joint bank account with someone you are no longer in a relationship with. You should remove any associations with people if it is no longer valid. You’ll also be able to check what accounts are ‘live’, i.e. not settled. If you see anything there that is actually paid off, then it would need to be removed. Most credit reference agencies are very helpful with updating information when you need to.
Rather than Loan, Save
Yes, it may seem obvious to point out and you may not have a lot to save whilst on benefits, but it is worth doing even for a small amount each month. Getting into the habit of putting money away each month will help to not only save money for when you need it but will also mean you can plan for an emergency situation when it crops up. Creating a saving habit will help you in the long term and you’ll be surprised how quickly this can increase without minimum effort. You should look to open a savings account with a good rate of interest so you can start earning money on your savings too. This way, you may be able to rely on savings rather than further borrowing to help with your next big purchase.
Andrea Schmidt is a staff writer for Wealthy Turtle. She’s a stay at home mom who loves to write about paying down her family’s debt, living on a budget, and exploring new side hustles to earn extra money.