Are you looking for a way to top up your Universal Credit — so you can pay for essential things like rent, ongoing expenses, and travel costs? Then you may need a budgeting loan.
In this guide we’ll discuss:
- Whether interest is payable on a so-called social fund loan
- What a budgeting loan is and who can apply for one
- Limitations: what can and can’t it be used for?
What is a budgeting loan?
Sometimes called a social fund loan, it helps people stay financially afloat by helping them cover essential expenses. Paid in advance, a budgeting loan could fund maternity or funeral expenses, pay monthly instalments on a hire purchase agreement, or buy clothing.
You may not need to take out a budgeting loan. It depends on why you need the money. For example, if you need financial support to raise a baby, you could apply for the Sure Start Maternity Grant instead.
Schemes like the Sure Start Maternity Grant don’t need to be repaid, whereas a social fund loan does.
What if you aren’t eligible?
If you can’t raise money through an existing scheme, applying for a budgeting loan might be best. But there’s no guarantee of acceptance. Anyone in England, Wales, or Northern Ireland can apply and there’s no specific age criteria
If you live in Scotland, apply via the Best Start Grant instead.
The scheme is run by the Department for Work and Pensions.
Money can be paid in advance, subject to assessment.
Who is eligible for it?
To qualify, you’ll need to be claiming one of a range of benefits on the day you make your application. Failure to meet these criteria will result in rejection.
Before proceeding, check you’re applying for at least one of the following benefits:
- Income-related Employment and Support Allowance
- Income-based Jobseeker’s Allowance
- Pension Credit
- Income Support
An important note about earnings
Your earnings over a six month period cannot exceed a maximum threshold. This limit will vary depending on whether you’re single or a couple.
The thresholds are:
- £2,600 if you’re single
- £3,600 for couples
Do you currently have savings?
You won’t qualify for a full social fund loan if you (or your partner) have £1,000 or more in savings. This threshold would increase to £2,000 if either of you were 63 or older.
However, you may still get some money. This will depend on your circumstances, ability to repay the loan, and savings.
If you’ve previously taken out a budgeting loan, requested an advance, or not repaid a previous one, you won’t be able to apply for a budgeting advance.
What a budgeting loan can help pay for
As suggested earlier, it can only be used to pay for essentials. The money can’t be used to pay for a holiday, new car, or other luxury things or items you by no means depend on.
Permissible purchases include:
- Advanced rent payments or removal expenses
- Costs associated with upkeeping or maintaining your home
- Essential travel expenses — for example, getting to work
- Maternity or funeral costs
Hire purchase agreements are also covered. But the purchases must fall into one of the above-mentioned categories.
Is there interest on budgeting loans?
Take out a conventional loan and you’ll be charged interest — meaning the amount you repay will be greater than that which you borrowed. The same rule applies to other forms of lending too, like credit cards.
But if you can barely afford to buy essentials, you’re not going to have the financial means to repay a loan plus interest.
Fortunately, with a budgeting loan, you won’t have to.
Repaying your budgeting loan
Firstly, you only have to pay back what you borrow. No interest will roll-up on the amount loaned. Repayments will be deducted from your benefits too — so you won’t have to do anything.
How much you repay will depend not just on your benefits, but also how much you earn and can afford to repay.
A budgeting loan must be repaid within a specific time window. This is normally 2 years. If you stop claiming benefits during this period, you’ll need to find another means to repay your debt.
What happens once you’ve been accepted?
If your application for a social fund loan is successful, a letter, email, or text will be sent that tells you (a) that you’ve been approved; (b) the size of your weekly repayments.
Introducing Salad Money
If you need a loan for something essential or non-essential, and work for the NHS or public sector, we may be able to help.
We offer short-term loans for small amounts and assess applicants using a trusted system called Open Banking.
No credit checks are used and our team will be on hand to help if you have any questions about the process.
Apply now or contact us to learn more.