Loans for people on low incomes in the UK

If you are on a low wage, zero-hours contract, benefits or a small pension in the UK, mainstream lenders often turn you down, and the companies that say yes tend to charge the most. That gap is where people get hurt: payday loans rolled over, doorstep credit, catalogue debt, or worse, an illegal lender. Yet the UK also has some of the strongest consumer credit rules in Europe and a growing network of fair lenders aimed at people with modest incomes.

This page deals with borrowing only. For grants, food banks and council crisis funds, see our guide to emergency help in the UK. It is always worth checking those first, because a grant does not need to be repaid.

Start with interest-free options linked to benefits

If you claim Universal Credit, a Budgeting Advance can cover essential one-off costs and is repaid from future payments without interest. People on certain older benefits or Pension Credit may still be able to get a Budgeting Loan from the Social Fund. In Northern Ireland, Discretionary Support can include interest-free loans. Ask about these before any commercial lender: they are often the cheapest credit you will ever be offered.

The trade-off is that repayments come straight out of your benefit. Ask how much will be deducted each month and whether you can repay over a longer period.

Credit unions and community lenders

Credit unions are not-for-profit financial cooperatives owned by their members. They lend small amounts to people banks often refuse, with interest rates capped by law far below payday lenders. Many encourage you to save a little alongside your loan, which builds a cushion for next time. Some let you repay directly from benefits or wages.

Community development finance institutions (CDFIs) are social lenders that offer personal loans to people with thin or damaged credit files. Their rates are higher than a bank's but usually much lower than high-cost credit. Some areas also have no-interest loan schemes run by charities and local partners for essential costs. Our page on interest-free loans explains how these work.

The FCA rules that protect you

All consumer lenders must be authorised by the Financial Conduct Authority (FCA). Before lending, they must check that you can afford the repayments without hardship. You can check any firm on the FCA register; if it is not listed, do not deal with it.

High-cost short-term credit, such as payday loans, is subject to a price cap:

• interest and fees cannot exceed 0.8% per day of the amount borrowed;
• default fees are capped at £15;
• you will never repay more in interest and charges than the amount you borrowed.

Even with these limits, a payday loan is still an expensive way to cover a regular shortfall. The cap stops the worst abuses; it does not make the loan cheap.

Your credit file and why banks refuse

Lenders check your history with the three main credit reference agencies: Experian, Equifax and TransUnion. You have a legal right to see your statutory credit report free of charge from each of them. Check for mistakes, old addresses and accounts you do not recognise.

Common reasons for refusal include missed payments, defaults, County Court Judgments, too many recent applications and not being on the electoral roll. If you are refused, use eligibility checkers that do a soft search rather than applying again and again; each full application leaves a mark on your file.

Comparing the real cost: APR and total repayable

Every credit advert and agreement must show the APR (annual percentage rate). It lets you compare loans of different lengths and fees. But on a small loan, look just as closely at the total amount repayable.

• How much cash will you actually receive?
• What is the monthly or weekly repayment, and how many are there?
• What is the total you will repay, including all fees?
• What happens if you are late or miss a payment?
• Can you repay early without a penalty?

Then do the budget test: take your monthly income, subtract rent, council tax, energy, food, travel and existing debts. If the repayment does not fit in what is left, the loan will create a new problem rather than solve one.

Products to treat with caution

• Payday and short-term loans: expensive, and easy to roll into the next one.
• Rent-to-own and weekly-payment stores: you can pay well over the shop price for an appliance; compare with a credit union loan or a council grant for white goods.
• Guarantor loans: a friend or relative becomes liable if you cannot pay, which can damage relationships.
• Buy now, pay later: small instalments add up fast across several purchases.
• Logbook loans: secured on your car, which you can lose.

Family loans can work if they are written down; see our guide on borrowing from family.

If you already have debts

Borrowing to repay other debts rarely works on a low income. Talk to a free debt adviser first: Citizens Advice, StepChange, National Debtline or an adviser found through MoneyHelper. They can negotiate with creditors and look at options such as a debt management plan, a Debt Relief Order or Breathing Space in England and Wales. Our page on borrowing when you are already in debt explains the risks in detail.

Loan sharks and online scams

Illegal money lenders often start friendly, then add charges, take your bank card or make threats. You owe them nothing in law, and specialist teams such as Stop Loan Sharks in England can help confidentially. Online, be wary of:

• anyone asking for a fee before paying out a loan;
• "lenders" contacting you on Facebook, Instagram, WhatsApp or by text;
• firms that copy the name of a real company but use a different phone number or website;
• promises of guaranteed approval with no credit check.

Creditpauvre.com does not lend, broker or pass on your details. Check the FCA register yourself before you share any information.