Finding a quick fix for your financial issues is a challenging task. If you are struggling with finances, you will look for ways to manage your expenses. There are a lot of options available if you consider borrowing. For example, you can take a personal loan, you can use your credit card, approach your employer for a payday advance, or you can ask your friends and family to help you out. A budgeting loan is one such option that you can consider.
Let us dig deeper to find out more about this loan.
What is a budgeting loan?
A budgeting loan can be taken to pay for unforeseen expenses if you are on a low income. These are interest-free loans that you can borrow if you are already getting certain benefits. Rather than paying a high-interest rate on personal loans, you can borrow an interest-free loan from the Social Fund.
This loan can be used for a variety of household necessities and also pay for the existing consumer debt. It can be used for:
- Advance rent for a new home
- Clothing or footwear
- Maternity expenses
- Essential travelling expenses
- Furniture and household equipment
- Home maintenance, security and improvement
- Funeral expenses
- Removal expenses to new accommodation
- Hire purchase payments
- Expenses due to getting or starting a new job
How does a budgeting loan work?
Although you do not have to repay the loan with interest, you will have to pay it back. While borrowing the loan and depending on the amount that you borrow, you will get a maximum of 2 years to repay the loan.
The repayment amount is automatically deducted from the benefits that you receive. And if you stop getting benefits in between, then you will have to work around to find another way to make the repayments.
If you are expecting your first child or you are expecting more than one child and you already have children, then you can claim up to £500 under SureStart maternity grant. You are not required to pay this money back.
How do I apply for a budgeting loan?
You are eligible for a budgeting loan only if you are receiving other benefits. You can apply for this loan, only if you are receiving anyone out of these 4 benefits:
- Income Support
- Pension Credit
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
There are a few other eligibility criteria. Like, you must have been claiming the benefit for at least 26 weeks/6 months. A gap or break of no more than 28 days is acceptable. The minimum amount that you can borrow is £100. However, you can borrow more than this depending on your household circumstances.
- Borrow £384 if you are single
- Borrow £464 if you are part of a couple
- Borrow £812 if you have children
To apply for this loan, visit www.gov.uk and please note that you will not be eligible for a budgeting loan if you are on Universal Credit. You will have to apply for a budgeting advance if that’s the case. Also, your involvement in a strike or industrial action will make you ineligible for the loan. Before applying for a budgeting loan, ensure that you do not have more than £1500 of the unpaid balance for Crisis Loans and Budgeting Loans.
Are budgeting loans still available?
Yes. Budgeting loans are still available and you can apply for it online. Crisis Loans are no longer available. If you or your partner have more than £1000 in savings you are not eligible for a budgeting loan. There are 4 major factors taken into consideration while assessing your application:
- Your circumstances
- Your ability to repay the loan
- Any existing budgeting loan that you owe
- Your savings
This loan doesn’t count as an income and hence, it will not impact other benefits that you are on. You need to provide your national insurance number and other important information in the claim form. Usually, it takes around 5-6 weeks for a budgeting loan to be processed.
What are some other ways to deal with debts?
If you are knee-deep in debt and you do not have an idea of the total amount that you owe, it’s best if you contact free debt advice services like Money Advice Service. They will be able to help you get through this situation. They may ask you how much you owe, about your assets and your income.
If you think you can manage to make timely repayments on a personal loan, you can consider this option as well. However, please note that the rate of interest on these loans is high as compared to budgeting loans. And you should only opt for this loan if you can make all the repayments on time and in full.
Having a safety net helps you in situations where you need money for unexpected expenses. Try to save some portion of your monthly income so that you do not have to panic when the situation arises. Also, plan and draft a monthly budget to help you get through the month without any hassle. A monthly budget is an essential financial tool if you are struggling with your finances every month.