Loans for people on benefits are a kind of unemployed loan. These loans are small loans mainly aimed at funding small emergencies. You are eligible for these loans if you are on unemployment benefits, child support benefits, housing benefits, and the like.
However, it does not mean that you do not have to have a passive income source. If you are borrowing money, you are to repay the debt, which is possible only when you have some sort of passive income source. Benefits will play a part in income, but it would be slightly tricky to get the nod from a lender if you are solely on benefits.
Loans for people on benefits are emergency loans, and therefore, the repayment size is small. More often than not, the repayment length of these loans is not more than a month, and they require to be paid off in a lump sum. It seems very easy to get rid of a debt at once because the duration of the loan is not more than a month.
However, many people have found that such small loans are primarily responsible for tying you to a debt trap and reason being the lump sum payment. It is considered that these loans are expensive and extensive research is required before applying for these loans.
Why are these loans expensive?
High-interest rates are to blame for these loans being expensive partly, but sometimes it seems so because you take on more than your affordability. For instance, if you need £100 for a period of 14 days, you will have to pay back £115. Because you did not have £100 to pay out of your pocket, you would not be able to pay £15 on top of that. As a result, you will roll over the loan, and unfortunately, this cycle will keep on moving. This is the reason why you fall into a debt trap.
You can escape the debt trap by paying off the money at once on the due date. Because these loans are small loans, you are not allowed to make minimum payments. Further, this option is possible only when you struggle to manage your finances due to debt burden. This scenario does not fit these loans.
Could you get loans for people on benefits?
If you are looking to get these loans at affordable interest rates, it is possible, provided you follow certain conditions.
Do proper research
You should do proper research before applying for these loans. Each lender charges different interest rates. You can enquire about the interest rates from their customer care staff. Use the online loan calculator to get an idea of how much it would cost you.
This is important because this will help you if you will actually be able to afford the debt. The customer care staff may not be able to tell you the exact interest rate they will charge. This is because it depends on your credit rating and repaying capacity.
Have a good credit score
You should have a good credit rating at the time of applying for these loans. Although you can get them a bad credit history, you will also end up paying high-interest rates. Make sure you will not miss the payment if you are borrowing money despite a bad credit rating.
Some people use these loans to meet small recurring expenses. This is one of the biggest mistakes in why you fall into a debt trap. Make sure you borrow money only when you have come across an emergency, whether or not you have a good credit rating. No loan has been designed to meet expenses other than one-off costs.
Consider payments in instalments
Because loans for people on benefits require a lump sum payment, it can undoubtedly be tough for you to repay the debt on time once and for all. Of course, when you are not able to cover the cost out of your pocket, you will not be able to pay interest.
Therefore, it makes sense to borrow money to be paid in instalments. You should take out bad credit instalment loans if you have a bad credit rating. You will be paying down the debt in fixed instalments. This will not just help ease the payment, but this will also help improve your credit score.
Check your repaying capacity
You should check your repaying capacity as well before taking out these loans. You should apply for these loans only when you know you will manage to repay the debt. If you want to take out instalment loans for bad credit, it is still essential to ensure your repaying capacity.
Instalment repayments can make your debt more accessible, but it does not mean that they allow you to borrow more than your affordability. Though money is going in instalments, the ultimate impact is on your pocket.
The final word
Loans for people on benefits can be slightly more expensive than other loans, but it depends on your credit rating and repaying capacity, how much a lender would lend you money and at what interest rate.
Check your repaying capacity because if a lender is sceptical about your interest capacity, they may not be able to approve your application. Be careful about the size of the loan you are taking out and the repaying capacity.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
