Understanding Budgeting Loans
Interest-free loans are real! Yep, you read that right. There is such thing as a loan with no interest – they’re called budgeting loans.
Sometimes, it really pays off to research more about loan options than just jumping into whatever is in front of you. Trying to find the best loan can be a daunting task and you could easily get lost in an ocean of lenders and loan types.
I was once one of those desperate people who would bury their faces in the computer for hours, searching for a good lender. You compare loans and lenders, weigh in your chances, and select the option that works best for your circumstance.
Then, I bumped into these types of loan called budgeting loan and budgeting advance. Do you want to know more? Keep reading.
Budgeting Loans are interest-free loans.
Yes, they don’t include interest rate. However, there’s a catch. They’re available only to people claiming certain income-related benefits or pension.
This type of loan is a one-off payment from the social fund. It is a cash-limited fund of money provided by the government of UK. There is a certain amount of money available for the social fund of each area. Once the budget is spent, there will be no more grants or loans too.
Since you don’t pay any interest on budgeting loans, they are the best alternative to other types of borrowing such as doorstep loans or payday loans. While payday loans and doorstep loans can be handy at times, they have extremely high interest rates that could blow your head off.
Here’s how you can you use a Budgeting Loan:
Such loans exist to help people claiming some form of benefits to pay for large expenditure that would otherwise be unaffordable for them. These loans help in paying for an essential or unexpected expense if one is on a low income.
You may be able to get a budgeting loan to pay for housing-related expenses such as rent or rent in advance, purchase furniture and household equipment, removal expenses when you move home, needed home improvements, home maintenance or security. You can use it for travelling expenses, too.
You can also use the money to buy clothes and shoes, pay off maternity costs, and settle funeral expenses. Likewise, you may want to apply for a budgeting loan to repay other loans and debts, including repaying expensive payday loans. Anything to help you look for or start work is also a practice expense for a budgeting loan to be used on.
Who can apply?
You can get a Budgeting Loan if you’re getting Pension Credit, Income Support, Income-based Jobseeker’s Allowance, Income-related Employment and Support Allowance.
Oops, not so fast! Be aware that you and your partner must have been claiming any of these benefits for at least 26 weeks or six months, either consecutively or with a break of no more than 28 days.
Moreover, your chances of taking out a budgeting loan and the loan amount you might be getting will depend on your personal circumstances. The least amount you can ask for is £100, but some factors affect the amount you can ask for, such as existing Social Fund loans and savings over £1,000 or £2,000 if you are 63 years old and above.
The amount varies largely and there is a particular limit available for single people, couples without children, and families including lone parents with children. If it seems like you may not be able to afford it, you will not be granted the loan.
You won’t be able to get a Budgeting Loan for certain reasons. One of the unfortunate reasons why you cannot get a Budgeting Loan is when you are involved in any industrial action such as a strike, walkout or lockout. If you owe more than £1,500 in total for Crisis Loans and Budgeting Loans, you may not qualify for this loan as well.
Paying back a Budgeting Loan
Repaying a loan can be such a burden, but not necessarily with a budgeting loan. Budgeting loans exist to help people, thus this type of loan is more lenient and flexible as compared to traditional loans.
Depending on the amount you borrowed, you must pay it back within two years. A fixed amount will be taken out of your benefits as the repayments until the loan is completely repaid.
If for some reason you stop getting benefits while you’re paying back the loan, you can make an arrangement or agree with another way to pay the money you owed.
If you can no longer afford to make the repayments, explain and negotiate with the office that paid you to work out another repayment plan. And, don’t get into another loan and more debts to pay off the loan.
Get a Budgeting Advance if you claim universal credit.
Instead of a Budgeting Loan, you should get a Budgeting Advance if you’re claiming Universal Credit. It’s basically the same, but this is specifically for those claiming Universal Credit.
To get a Budgeting Advance you must have been getting Universal Credit for at least six months, unless you need the money to help you get a job or keep an existing job, You must also have earned less than £2,600 if you’re single, £3,600 if you’re in a couple in the past six months. Also, you must not be paying off another Budgeting Advance.
Usually, repayment for Budgeting Advance starts out of your next Universal Credit payment within the next six months.
If you’re already getting certain benefits and need to borrow money, see if you can apply for a Budgeting Loan of Budgeting Advance from the Social Fund.
Since you won’t be paying for interest rate, this loan can be much cheaper than paying high interest charges for taking out payday loans or doorstep loans.
If you find yourself eligible for this type of loans, you can apply online on the GOV.UK website. However, this option is not available in Northern Ireland.
Likewise, it’s important to know that if you claim universal credit, you won’t be eligible to apply for a Budgeting Loan. Instead, you have access to a new system of budgeting advances.