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What is a budgeting loan and how does it work?

What is a budgeting loan and how does it work?
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Essential expenses can sometimes crop up when you are least expecting them. If you are on low income and do not have an emergency fund, taking care of such expenses can be tricky. In such situations, a budgeting loan can come in handy.

Here is a brief overview of what a budgeting loan is and how it works.

What is a budgeting loan?

A budgeting loan is an interest-free loan available to people who have been on a qualifying benefit scheme for at least 26 weeks (see below). The loan can help you spread the cost of essential expenses over a period that is more manageable.

Some essential expenses that budgeting loans can help pay for include:

  • Furniture and household items
  • Clothing or footwear items
  • Moving costs
  • Advance rent
  • Home maintenance, improvement and security costs
  • Travelling costs within the UK
  • Funeral costs
  • Maternity costs

Do I qualify for a budgeting loan?

You can apply for a budgeting loan if you have been on one of these benefit schemes for at least 26 weeks:

  • Income Support
  • Pension Credit
  • income-related Employment and Support Allowance
  • income-based Job Seeker’s Allowance

Although the official stipulation is to have been on any of these benefits for at least 26 consecutive weeks, short breaks can be ignored if they are no more than 28 days.

Unfortunately, you cannot get a budgeting loan if you are currently claiming Universal Credit. Instead, you can claim for a Budgeting Advance. However, if you have moved to Pension Credit from Universal Credit recently, the time spent claiming Universal Credit will be counted as part of the 26 weeks.

You also cannot get a budgeting loan if you are involved in industrial action such as a strike or a walkout and if you currently owe more than £1500 in total social fund loans.

How do I apply for a budgeting loan?

You can apply for a budgeting loan online or in paper form. Applying online using the gov.uk website is quickest. However, if you prefer to use paper, you can complete form SF500, which you can pick up at your local Jobcentre Plus office or download online from the gov.uk website and then return by post.

If you apply online, you will receive feedback about the status of your loan application within 20 days (you’ll need to allow 25 days if you do it by post). You can expect to receive the money within three weeks, and it will be paid directly into your bank, credit union or building society account.

It is possible that your application for a budgeting loan will be denied. If this happens, you can ask for a review of the process. However, you have to do it within 28 days, in writing, explaining why you think the decision is unfair or wrong.

If you still do not agree with the decision, even after the review, you have another chance to plead your case with the Independent Case Examiner’s office which will look at the case and render a final decision.

If this second review does not go your way, it might perhaps be time to think of a different strategy to get cash for your essential expense(s). For example, you might try out a few our recommended ways of getting money fast.

What amount can I get?

The lowest budgeting loan amount you can ask for is £100. The maximum amount will be determined by your household circumstances. You might be able to borrow up to:

  • £348 if you are unmarried.
  • £464 if you are part of a couple.
  • £812 if you have children.

Other factors that determine the budgeting loan amount you can get include:

  • Your ability to pay back the loan.
  • Any savings that exceed £1000 (or £2000 if you or your partner are more than 63 years old).
  • Any existing social fund loans that you are paying back.

How do I pay back the loan?

Since a budgeting loan is interest free, you will only pay back the amount you borrowed. Repayments are taken automatically from your benefits. The exact amount taken will depend on your income (including the benefits that you receive) and what you can afford. The normal repayment period is two years.

If, by any chance, you stop getting benefits before you have completed paying back the loan, you might need to make another arrangement for repaying it. Also, if you find you cannot afford the set repayments, you can contact the office that paid you the loan to try to work out another plan for repayment.  

One thing worth noting is that due to the coronavirus pandemic, repayments of budgeting loans were temporarily stopped. However, as of August 2020, repayments have started again.

What next?

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