Can you borrow money if you are on benefits?

There are a number of reasons why you may be looking to borrow money, whether it’s for home improvements, car finance or to consolidate debts, you may be wondering what your chances are of getting approved. If you receive benefit income, it can be harder to borrow money but it’s not impossible. There are a few things you should be aware of before you start applying and there are also a number of ways in which you could improve approval rates. Let’s explore how you can borrow money when you are on benefits.

How does income affect loan approvals?

When you apply for a loan, credit card or car finance lenders will want to know how you can afford to pay back your loan. They can usually do this by performing an affordability check on you to see how much you can spend. They do this by looking at your incomings and outgoings and determine how much you can afford to spend. Having a lower income can mean you may be offered a lower loan amount for finance. Lenders will also look at how much debt your currently owe or any other financial commitments you may have. Having good income and low levels of debt can make it easier to get approved for loans.

Can you get car finance on benefits?

Car finance on benefits is possible and just like applying for any type of loan, it’s about how you can prove your affordability. For many people, receiving benefit income means they have a steady income that isn’t going to change any time soon. Benefit income such as disability allowance, personal independent payment, universal credit and more can be accepted as a form of income. It can be easier to get approved if you are working and receive benefit income too. You can use your benefits as additional income to help support your application. It can be harder to get approved if you are unemployed and only receive benefit income but here are a few ways in which you can help increase your chances of getting a loan.

Increase your chances of getting a loan on benefits:

There are a number of ways in which you can help to get yourself approved for a loan or finance with benefit income.

1.      Save up for a deposit

If you’re applying for car finance, you may be required to put down a deposit. It can be hard to save up for a deposit especially if you have little income but having a deposit can help you to get approved. This is because you don’t need to borrow as much from the lender and end up taking out a smaller loan. A smaller amount can also help to reduce your monthly payments and make you loan more affordable.

2.      Use a specialist lender

There are lenders who can be more suited to offering loans for people on benefits. It’s a common misconception that getting a loan means you will be offered high interest rates. However, by using a specialist lender you may benefit from a loan with more reasonable terms.

3.      Joint application

A joint application can be beneficial if you are struggling to get approved. A joint application, for example for car finance, is when two people apply for a loan on the same vehicle. If one person has a low income or bad credit score, it can help you get approved by supporting the application with your partners income. It’s worth noting though if you fail to pay back your loan, you will both be responsible, and both your credit files can be negatively impacted.

4.      Increase your credit score

Your credit score is important when it comes to your financial life. Your credit score can affect your ability to borrow, and many lenders will require you to pass a credit check before you are accepted. This is because they want to know how you have handled credit in the past and if you can be trusted to pay back your loan. You could consider increasing your credit score before you start applying. You can do this by clearing any existing credit card debt, fixing mistakes on your credit file, paying all your debts on time and keeping finance applications to a minimum.

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