How can I obtain personal loans while receiving a government benefit in the UK?

A personal loan is an unsecured loan aimed at helping you tide you over during financial emergencies. These loans come in various sizes. You can use them to meet small unexpected expenses as well as to make a big-ticket purchase. Obtaining a personal loan is not a cinch, as you must have a good credit report. If your credit rating is not stellar, you would end up being refused. Some lenders may approve your application, but they will charge you very high interest rates. In order to qualify for a personal loan, you must have to meet the following two conditions: 

1. You must have a good credit score. 

1. You must have a steady income source.  

If you fail to meet any of the following conditions, you will have to face rejection. Lenders do not entertain subprime borrowers with low-income sources. Personal loans are subject to high default risk as they do not last for more than a year, which means the size of monthly instalments will be quite larger. There is no guarantee about your financial circumstances. If somehow you lose your job, you will obviously struggle to keep up with payments.  

Unfortunately, personal loans are unsecured loans. They are not subject to any collateral. Your lender has nothing to repossess to get their money back. The default risk is too high. Therefore, personal loan lenders charge very high interest rates.  

What if you do not have a job? Can you take out a personal loan then? 

Obtaining a personal loan while receiving benefits 

As you know that taking out a personal loan is not easy at all. You must have an excellent credit report. In addition to that, you must have a strong income source. If you have already lost your job, it is certainly going to be challenging to take out a personal loan. But it is not impossible either. You can take out a personal loan despite living on benefits as long as you are able to discharge your obligation. Here is how you can qualify for a personal loan while receiving benefits: 

• You should have a side gig 

Benefits cannot be enough to prove your repaying capacity. After you lose your job, you are dependent on your savings and benefits to meet your needs. Of course, your savings cannot be utilized as your income.  

Your benefits may be considered as your income, but they are not enough to prove that you can repay the debt. This is because you are to pay interest on the borrowed sum. It would be quite challenging to repay the debt. As a result, your lender will reject your application. 

In order to increase your chances of qualifying for a personal loan while being on benefits, you should have a side gig. With the help of a side gig, you can ensure a smooth cash inflow. In fact, when you have a side gig, you will have less need for borrowing money. A side gig could be: 

1. Babysitting 

1. Pet sitting 

1. Dog walking 

1. Uber driving 

1. Lawn making 

1. Freelancing 

If you have a passive income source, it will make it much easier for you to qualify for a personal loan. A passive income source includes rental income, dividends, and interest income. Some other ways to generate passive income include: 

1. Rent out a portion of your house 

1. Rent out a garage 

1. Rent out a parking lot 

The more money coming in, the better it is. This is because it will make it much easier for you to qualify for a personal loan when on benefits.  

• Borrow less than you need 

If you are really concerned about increasing your chances of taking out a personal loan while being on benefits, you should borrow less than you need. Borrowing a large amount of money will take you nowhere except multiple times rejection because lenders will be sceptical about your repaying capacity.  

Even though you have a side gig or passive income sources, you are to dip into those funds to meet your essential expenses too. Of course, you will not be left with enough money to repay your debt. Remember that personal loans are quite expensive. They carry high interest rates, and when you take them out while being on benefits, they will be even more expensive. You should always try to borrow as little money as possible. 

Look over your budget. Check how much money you will be left with after meeting your essential expenses. The next step is to use online calculators to determine the estimated cost. Since actual interest rates are always higher than estimated interest rates, you should have wiggle room in your budget.  

If you find that your budget does not have the room for repayment, you can whittle down the size of the principal.  

• Avoid having any other debt obligation 

If you want to take out a personal loan for people on benefits in the UK, make sure that you do not have any other debt obligations. If you already have other debts to discharge, you will certainly struggle to keep up with payments by borrowing money. Do not forget that most of your passive income and savings will go towards your existing debt payments. In such circumstances, no lender would ever be able to lend you money then.  

This is quite evident that you will fall behind on payments. If it does happen, you will end up with brutally damaging your credit score. As a result, you will find it even more difficult to qualify for a personal loan.  

What if you fail to qualify for a personal loan? 

If you fail to qualify for a personal loan when you are on benefits, you should use your credit card. A credit card can help you to meet small emergency expenses, such as a car repair.  

However, it is recommended that you use a credit card only when you are completely certain about your repaying capacity. When your credit card has a generous limit, it is obvious to be tempted to use it, but do not forget that it comes with a cost.  

The bottom line 

When you are on benefits, it can be challenging to qualify for a personal loan. This is because you do not have a stable income source. However, you can improve your chances of getting a personal loan by having a side gig. A passive income source will also help you borrow money. Borrow less than you need and make sure that you do not have any other debt obligations.  

If you fail to qualify for a personal loan, you can use an alternative, such as a credit card, but be careful while using them because they also charge interest. Having a high balance on your credit card will make it complicated for you to pay it on the due date and impair your credit rating, too.