A new expense can startle you every now and then, and you may not always be prepared to tackle one. For instance, your boiler breaks down on a chilly December morning, or your car needs a quick but pricey fix. In such situations, a little help could alleviate your financial distress.

Many feel tempted to use high-cost short-term options such as payday loans to solve such problems. But such alternatives do more harm than good – payday loans have exorbitant interest rates. Plus, if you’re receiving Universal Credit or claiming other benefits, repaying a predatory loan may rip your savings off you.

You can always opt for a low-cost budgeting loan or budgeting advance. Both of these funds solve the same purpose but work in slightly different ways – Let’s find out how.

What is a budgeting loan?

Budgeting loans are interest-free loans sponsored by the government Social Fund to help you cover unprecedented costs or essentials if you’re low on income and receiving benefits. Interest-free loans mean that you won’t be required to pay any interest on the loan. The loan’s repayments will be deducted from your monthly benefit payments.

What costs can a budgeting loan cover?

Buying or fixing furniture or household appliances
Purchasing retail items such as clothing or footwear
Paying rental advance
Paying packers and movers
Home improvement or maintenance expenses
Covering travel expenses
Living costs to help you find a new job
Covering maternity expenses
Paying for funeral costs

Am I eligible for a budgeting loan?

You will be able to apply for a budgeting loan even if you’re claiming the following expenses:

Pension Credit
Income Support
Income-based Jobseeker’s Allowance
Income-related Employment and Support Allowance

To avail of a budgeting loan, you must have been claiming these benefits for at least a period of 26 weeks – either consecutively or with a break of 28 days or less.

The minimum loans amount for a budgeting loan is £100. Here’s how much you can borrow with this loan:

Up to £384 if you’re single, with individual expenses
Up to £464 for couples.
Up to £812 if you have children

You may not be eligible for the loan if:

You are receiving Universal Credit or have existing loans from the Social Fund
You already owe £1500 or more in a crisis loan or budgeting loans
You have savings of £1000 or more (£2000 or more if you 63 or above)

How to repay a budgeting loan?

A budgeting loan is interest-free, with a mutually agreed repayment term. Typically, you can repay a budgeting loan within two years, but it primarily depends on the amount you borrow and your financial circumstances.

The repayments for your budgeting loan are usually deducted from your monthly benefits payments. In case you somehow stop getting your benefit payments during your repayment period, you’ll need to agree to an alternative arrangement to repay the loan.

Similarly, if you find it difficult to afford the payments, you could reach out to the office where you borrowed your budgeting loan to devise another repayment strategy. Ensure that you don’t accumulate debt trying to repay the loan.

What is a budgeting advance?

A budgeting advance is essentially the equivalent of a budgeting loan for Universal Credit claimants. It can help you cover essential or unplanned expenses if you’re claiming Universal Credit.

To avail of a budgeting advance, you must have been receiving Universal Credit for a minimum of six months. An exception can be made for those who need funds to find employment opportunities or keep their current jobs.

Alternatively, you can consider a Universal Credit Advance, a loan for Universal Credit claimants who need to cover urgent expenses while waiting on their payment. This loan is ideal for those struggling to make ends meet and cannot wait five weeks until they receive their first Universal Credit payment.

Am I eligible to get a budgeting advance?

To be eligible for a budgeting advance:

You need to have been receiving Universal Credit for at least six months unless it’s for living costs during a period when you’re looking for employment opportunities.
You have been earning £2600 (if you’re single) and £3600 (if you’re part of a couple) in the past six months.
You’re not paying towards an ongoing budgeting advance.

The minimum loan amount for a budgeting advance is £100. You can borrow:

Up to £384 if you’re single
Up to £464 if you’re a couple
Up to £812 if you’re with children

How do I repay my budgeting advance?

Normally, the repayments for your budgeting advance will be deducted from your Universal Credit payments. You will need to repay a budgeting advance within two years if you borrowed this loan after April 12’ 2021, but within a year if you borrowed it before this date.

You will have to make the first repayment when you get a Universal Credit payment after borrowing receiving the funds. Should you stop receiving your Universal Credit payments, you’ll have to work out a repayment plan with the Debt Management Contact Centre.

Can I borrow budgeting loans or advances more than once?

You can apply for a budgeting loan or budgeting advance as many times as you need funds. However, you’ll have to go through a check to assess your financial circumstances, including ongoing loan obligations and your repayment ability for the new loan.

Assessments are on a case-by-case basis, meaning that the amount you’re granted depends on various factors. Any outstanding budgeting loan or budgeting advance payments could affect your application.

How to apply for budgeting loans and budgeting advances

You can apply for budgeting loans on the gov.co.uk portal. Or, you can apply by post by downloading the form and posting it back. Alternatively, you can contact the Social Fund on 0800 169 0140 and request a printed copy of the form, which you can then post back. To apply for a budgeting advance, you’ll have to contact your local Jobcentre Plus coach.

Conclusion

A budgeting loan or a budgeting advance can help you cope with unplanned expenses. Ensure that you know the terms of the loan. You can always contact the concerned authorities in case you feel overburdened by the expenses.