Living on benefits but need a loan despite poor credit? A guide for you  

Loans that are provided to those with past credit issues are typically offered by direct lenders. A poor credit score is a result of poor cash management so that a lender will give your application a second thought. Luckily, if you get the nod, brace yourself to pay higher interest rates.  

Bad credit loans are no duck soup to handle. Whether or not they are paid off in instalments, these loans can burn a big hole in your pocket. However, some people need these loans when they are unemployed.  

Your savings and unemployment benefits will be what you will fall back on to get by unless you land a new job, but stretching your money can be backbreaking, especially if an emergency catches you unawares. Your credit score is already shoddy, and on top of that, you are living on benefits. Of course, you will find it harder to get the nod for bad credit loans.  

A few direct lenders will ask you to bring a guarantor who has a decent credit score and promises to clear the dues when you make a default, but how about if you do want to arrange a guarantor? Does that mean you cannot qualify for a loan?  

Arranging a guarantor is not an easy job because your guarantor will lose their credit scores in the wake of your default on payments. However, there is still the likelihood if you are living on benefits and need a loan today from a direct lender despite having a poor credit score. These loans will particularly help you meet emergency expenses, and therefore, they come in a small size.  

What you should know about on-benefit loans for bad credit? 

A lender only signs off on your application when they are sure about your repaying capacity. You are unemployed, and above all, your credit score is not up to scratch. This increases the risk for a lender. Chances are you fall behind on payments.  

There is certainly a great risk to be borne by a lender in case of a default. Still, be that as it may, a few lenders can loan you, but you need to work harder to search it out. Although it seems easy to qualify for these loans, there are certain hidden risks that you must know as a borrower.  

Interest rates will be high  

Loans for people on benefits for those with low credit scores are already notorious for charging high interest rates. Since you are jobless, the risk of the lender increases. In order to offset the risk involved in lending you money, your lender will charge higher interest rates.  

It is suggested that you use an online calculator to know the estimated cost. However, bear in mind that this will be lower than the actual cost because your credit score is not taken into account at this stage. Your credit rating will help a lender cover up the risk while giving approval on your loan application.  

It depends on the lender how risky they perceive you, and on that basis, they decide the interest rates to be charged.  

They can cap on a very little money  

You are jobless and in search of a new job, which means your savings and unemployment benefits are the income source that you are living off. It is obvious that you cannot borrow a large sum. Chances are your lender caps on £500 when you need £700.  

Getting the nod for bad credit loans on benefits with no guarantor when you are jobless is not duck soup, especially if you have been receiving unemployment benefits as your income.  

Income from a part-time job or freelance sources will prove your potential to pay off the debt on time. Remember that you will have to offset the damaging effects of a poor credit file by increasing your income. Interest rates will still be charged higher, but you can borrow quite a good amount.  

Falling into debt  

Another risk of taking out these loans is that you will fall into debt. Even though a lender will not give you the nod if the default risk is too high, chances are you eventually find yourself being unable to pay off the debt. These loans are small, so it is rare or rare that you will get a chance to pay them off in fixed instalments.  

The repayment length is not more than two weeks or a month, so if instalment payments are accepted, you will have to pay it down in two or four weekly instalments. This will not help ease your burden. Because of higher interest rates, you can find payments difficult, and you likely fall into a debt spiral.  

Doorstep service will be even more expensive  

A few lenders also provide doorstep services for such small loans. You can organise an in-person meeting with a representative of your lender at your home. It is quite convenient because you can discuss everything with the representative. Still, they are way more expensive because your lender will charge extra fees for arranging the visit of the representative to hand in money and collect payments. Doorstep service should be avoided if you are out of work.  

Key points to bear in mind  

Take a look at the following key points: 

• As these loans can be very expensive, it would be better to analyse your current financial situation and capacity. Do not borrow even a single penny more than you need. 

• Interest rates vary by lenders, so do not ignore the research work. Comparing rates will help you a lot to avoid being trapped in an expensive debt deal. 

• Try to generate more income sources apart from unemployment student benefits to qualify for the loan easily. 

• Before borrowing money, ask yourself if the nature of the expense is actually urgent.  

The final comment 

You can get a loan for bad credit with no guarantor when you are on benefits, but these loans can be very expensive. Be careful so you are not up to your neck in debt.