Navigating financial challenges while living on disability benefits can be intimidating. If you come across unexpected expenses, banks will not open their doors to you, as you will be considered a highly risky borrower. Good news is that accessing loans is possible despite being on disability benefits. There are various direct lenders who accept applications from people with disability benefits. However, borrowing money from them requires careful planning and understanding of the risks involved, so you do not rue the day.

What are disability benefits?

Disability benefits have been designed to provide financial support to those who are unable to work due to disability. There are various types of benefits that you may be entitled to from the government, but you need to meet the eligibility requirements.

Some lenders provide loans for people on disability benefits, but approval is dependent on your income stability. No lender would be in a position to lend you money if you fail to demonstrate your repayment capacity.

If you do not have any passive income source, your benefits will be regarded as your income. If you are on benefits other than disability benefits, you can also use them as a source of income.

What types of loans are available when you are on disability?

The following are the loans that you can seek while being on disability benefits:

§  Budgeting loans

Budgeting loans are the safest alternatives to borrow money. These interest-free loans are available from the government. These loans help you meet essential expenses when you are on income support and feeling the pinch to meet expenses such as utilities, rent, etc. Budgeting loans should be your first choice when you need money. Bear in mind that the principal amount will be deducted from your benefits.

§  Credit union loans

Borrowing from direct lenders could be slightly expensive if your credit score is not perfect. In that case, you should consider taking out emergency loans from credit unions. You need to be a member of a local credit union to borrow money. They offer subprime borrowers lower interest rates.

§  Payday alternative loans

Payday loans are aimed at those who have a fixed income source. Since you are on benefits, you will not be eligible for them, but there are alternatives to payday loans. They are way safer than them.

1.      Bad credit loans – these loans are aimed at those whose credit scores are not stellar. You can apply up to £1,000 depending on your passive income. They are discharged in one fell swoop or in weekly instalments.

2.     No guarantor loans – these loans can also come in handy even if your credit score is not stellar. The loan amount is approved based on your passive income.

3.     Loans for people on disability – these loans are specially aimed at the disabled. You may find these loans more affordable than no guarantor loans.

All these alternatives are more affordable than payday loans, but you should still be cautious about your repayment capacity. It is worth noting that bad credit loans and no guarantor loans are more likely to be approved when you have a consistent passive source of income. If you are living only on benefits, loans for people on disability will be the perfect bet.

§  Unsecured loans

If you need a large amount of money, you can consider unsecured loans for bad credit without a guarantor. However, to apply for these loans, you should have some additional income sources as well. Lenders will run your credit score and repayment capacity. If they find that you are an extremely risky borrower, they will turn you down.

If the loan is approved, they are paid back in fixed monthly instalments. When it comes to payments, they are more manageable than other short-term loans that are discharged at one shot.

What are the steps to access loans while on disability?

Follow these steps to access loans while on benefits:

§  Check your credit score

First, you need to check your credit score. Most of the loans are available for bad credit borrowers, but it does not insinuate that extremely risky borrowers will be welcome. Having a decent credit score helps increase your approval chances. 

§  Gather documents

You should gather documents to demonstrate that you can repay the debt. These documents include your bank statement and income sources such as a side gig. In addition, you will need to provide the details of disability benefits.

§  Explore lenders

Though banks do not accept applications from people on benefits, you can still explore lender options. Apart from online lenders, credit unions also provide these loans. Compare interest rates between them before applying for a loan.

§  Apply cautiously

Make sure that you have analysed your repayment capacity before using these loans. Apply to one lender at a time because multiple hard inquiries can damage your credit score.

What types of benefits do lenders accept for loans for people on benefits?

There is no doubt most lenders would require you to have a passive income source. However, a couple of lenders do consider benefits as your income. If you are specifically applying for a loan due to disability, the following benefits are accepted:

§  Disability living allowance and personal independence payment

§  Incapacity benefits

§  Industrial injuries disablement benefits

If you are on other benefits, you can consider them as your income too. They include:

§  Universal credit

§  Child benefit

§  Child and working tax credit

§  Fostering allowance

§  Employment support allowance

To wrap up

Loans for people on disability benefits are available from lenders as well as credit unions. Compare interest rates before applying for these loans. Budgeting loans are interest-free loans, so you should prioritise them if you need any financial help.

Though there are specialised lenders providing loans to people with disability benefits, there is no guarantee that you will receive approval. If you cannot get approval, you should consider alternatives like borrowing from friends and family. They may be able to help you. Ensure that you will repay them on time.