Unfortunately, life is full of unexpected costs. The trouble is, around 41% of people in the UK don’t have enough saved to cover these costs or go for more than a few weeks without any income.
This is where crisis loans or similar support can be helpful.
Although crisis loans have changed recently, there is still a Government scheme in place to help if you run into short-term financial difficulty.
In this guide, we’ll explore how these loans work, who might be eligible, how to apply, and some other information about different types of support that might be useful if you could use some financial help.
Changes to the government crisis loan scheme
The government is no longer offering crisis loans. Instead, they now offer ‘social fund budgeting loans‘ – a type of loan that’s designed to cover sudden, unexpected costs.
These costs might include things like:
- Travel costs within the UK
- Things to help you look for or start work
- Furniture for your home
- Clothes, footwear or uniform
- Moving house costs (like advance rent or removal costs)
- Improving, maintaining or securing your home
- Maternity or funeral expenses
The amount that you’ll be able to claim varies depending on your circumstances – but the minimum you can apply to borrow is £100.
If your application goes through successfully, you’ll get the amount you’ve asked for upfront. Then, repayments will come from your next benefit payment and a set number of your benefit payments going forward.
Am I eligible for a budgeting loan?
Before you apply for this kind of budgeting loan, you’ll need to check whether or not you’re eligible.
To be considered, you must have been getting one or more of the following benefits for at least 6 months:
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Pension Credit
Don’t worry if you’ve just moved from Universal Credit to Pension Credit, any time spent getting Universal Credit will count towards the 6 months.
The rules are slightly different if you’re based in Northern Ireland. You can view them in detail here.
How do I apply for a budgeting loan?
As long as you qualify for a budgeting loan, you can apply using the .GOV website.
The application is like filling out a questionnaire. Each page asks for either personal or financial information – then you’ll be asked whether you’d like to get updates on your application by email, text, or letter.
Other ways to apply
Don’t worry if you’re not comfortable or confident applying online.
You can download the same application form here – which you can then fill out and send to your local council.
Alternatively, you can contact your local authority and ask that a form is posted to you – or drop into their offices to pick one up.
What happens if you’re not eligible because you’re on Universal Credit?
If you’re one of the 5.8 million people who get Universal Credit in the UK, you’ll find that you’re not eligible for this kind of support.
Instead, you may be able to claim a short term benefit advance – called a ‘Budgeting Advance’. It sounds very similar to a ‘Budgeting Loan’ but there are some differences.
There’s a slightly smaller list of things you can get a Budgeting Advance for, but it still includes things like:
- Emergency household costs (such as replacing a fridge or cooker)
- Costs involved with getting a job or keeping your job
- Funeral costs
What other kinds of financial support does the government offer?
Budgeting loads and budgeting advances aren’t the only type of support that’s there for people on a low income who are facing financial emergencies.
Depending on your circumstances, you may be able to access:
- A hardship payment
- A Personal Independence Payment (PIP)
- A discretionary housing payment
- A short term benefit advance
You can take a look at each of these in a little more detail:
Hardship payments
A hardship payment is a service that’s available if your Universal Credit has been cut because of a sanction or penalty for fraud.
A hardship payment is a loan – so you’ll have to pay it back when the sanction ends. Usually, the Jobcentre will do this by reducing your benefit payment a little each month until it’s paid off.
You’ll usually be eligible for this kind of payment if a sanction means you’re struggling with things like accommodation costs, heating bills, food or hygiene costs.
The Jobcentre will usually need to see that you’ve tried to get help elsewhere before they give you a hardship payment. This doesn’t mean looking for credit elsewhere – but it does mean asking for extra hours at work or made sure you’re getting all the benefits you’re entitled to.
To qualify, you need to be receiving one of three benefits:
- Jobseeker’s Allowance
- Employment and Support Allowance
- Universal Credit
You can find out more about hardship payments at your local JobcentrePlus. Alternatively, you can contact the Department for Work & Pensions (DWP) on 0345 608 8545 to get more information.
Personal Independence Payments (PIP)
A Personal Independence Payment – or PIP – is a type of benefit that’s designed for people with long-term physical or mental conditions or disabilities that might mean they struggle financially.
The process involved with applying for PIP is often quite long – so it might not be suitable if you need quick financial support – but if your personal circumstances mean you’re entitled to this benefit, it can make a huge difference to living expenses, housing costs, and other areas going forward.
You’ll be assessed by a healthcare professional before you receive this support – and the amount your receive will depend on you and the condition you have.
You can make a PIP claim by contacting the DWP on 0800 917 2222.
Discretionary Housing Payments (DHPs)
A discretionary housing payment is a payment that you could get if your local council believes you need support with housing costs – such as:
- A rent shortfall
- Rent deposits
- Rent in advance if you need to move home
‘Discretionary’ means it is up to your local authority to decide whether or not your circumstances make your eligible. It also means that and backdating of the payments is up to the people you speak to and their council’s rules.
You can only get a DHP if you get either of the following benefits:
- Housing Benefit
- The ‘Housing Costs’ element of Universal Credit
DHPs are designed for people who have been affected by benefit payment caps (an upper limit put on how much benefit you can claim), changes to the ‘spare room subsidy’ if you’re in social housing, or changes to Local Housing Allowance (LHA) rates.
It can sometimes be difficult to find information about these kinds of payments online – especially because different councils sometimes call it different things. If you struggle, call into your local council office and ask to speak to someone about it.
Short-term benefit advances
A short-term benefit advance is a type of emergency support put in place by councils to help people who are waiting to hear about their application for a certain benefits.
For example, you may have applied for Universal Credit and be struggling for money immediately. This is especially likely to be the case if you expect benefit payments to be backdated.
Another example could be if there’s been a problem paying your benefit on the date you’re expecting. Sometimes, technical issues mean this happens.
If these, or similar circumstances sound familiar, the speaking to your local Jobcentre should be your next step. You’ll need to take evidence of your application and let them know what you need the money for.
As a loan, a short term benefit advance will be paid back over a reasonable time when your benefit is set up.
What else can you do if you find yourself in financial difficulty?
If you’re facing an unexpected cost and just don’t have enough money to cover everything, there are some other things you can do to avoid getting into financial hardship.
Payment holidays
For instance, taking a payment holiday with your creditors (companies you owe money to) can be helpful – and almost all lenders have this facility set up for you to use. It’s often even possible to set up an alternative payment plan for your council tax payments and utility bills (things like gas, electric, and water).
It’s absolutely essential that you do this before you miss any payments though – as being in arrears can often make you ineligible for a payment holiday.
Start by calling the companies you owe money to. Explain that you’ve had an unexpected cost and ask if they offer payment holidays or can pause your repayments. Almost all lenders prefer to set something up like this – rather than have you just miss a payment.
Food banks
Sometimes, when an unexpected payment comes out of the blue, it can get to the point where you feel you have to go as far as skipping meals to make sure you have enough to keep going.
This doesn’t have to be the case. There are thousands of food banks set up around the UK for people who feel they have to choose between covering daily living expenses and putting food on the table.
Some food banks will need a referral from your local Citizens Advice centre or Jobcentre – but not all do. If you’re not sure, you can drop in to see them first or speak to the Jobcentre or Citizens Advice.
If you’re receiving support from any other organisation (such as a charity, a school, or a children’s centre) they may also be able to refer you.
Around 2.5 million people in the UK used food banks last year – so if you need this kind of support, you can be confident that you’re not alone.
Things to avoid when you’re facing money problems
If you’re facing money problems, you may find that you start seeing adverts for payday loans and other credit services.
Internet marketing is very clever. Often, just searching for government support or how to make a benefit claim will be enough for you to start seeing adverts from companies that offer these kinds of loans.
If possible, you should avoid using payday loans, payday advances, or things like logbook loans.
They might feel tempting – especially when they offer to put the money in your bank quickly – but they can quickly lead to even more financial difficulties. When you get money from the government to cover financial emergencies, this usually comes as an interest free loan – meaning you only pay back what you borrow.
Payday loans are different though. You’ll almost always pay back a lot more than you borrowed – and if you miss a payment, you can easily find yourself owing hundreds of pounds more than you borrowed.
Adding to your outgoings
When you use payday loans, credit cards, or other similar lines of credit to get out of financial difficulty, you’ll usually be adding to what you owe – often over a long period of time.
This can make it much harder to build any kind of emergency fund that will stop you running into financial hardship going forward.
Why did the government change the crisis loan system?
In 2011, the government announced that crisis loans would change.
At the time, the Minister in charge of the loans system explained that more than 400,000 people had received over 10 crisis loans, and that he felt it was “clear that the system is acting as a sticking plaster that isn’t addressing the real problems that people are facing.”
Ultimately, neither a crisis loan or the social fund budgeting loans that replaced them were ever intended to deal with financial issues in the longer term.
If you’re facing on-going financial difficulty, you may decide that researching government approved debt solutions is a more positive step.
