Personal loans are small loans that can be used to cover a wide range of expenses – both planned and unexpected. These loans are categorized based on their intended purpose. For instance, a personal loan taken out to finance a wedding is called a wedding loan, while the one used to fund a vacation is called a holiday loan. Personal loans are called small emergency loans when they are aimed at funding unforeseen expenses.  

Personal loans, in other words, are known as unsecured loans, which implies that they are not subject to collateral. In case of default, unlike secured loans, there is no risk of losing your valuable asset. Small emergency loans and large personal loans work differently. The former comes with an exiguous sum of money, usually less than £1,000, and is discharged in one fell swoop, while the latter involves fixed instalment payments over an extended period.  

The repayment length of small emergency loans cannot be more than a month, while it lasts for at least six months for planned large expenses. In order to qualify for a personal loan, regardless of its size, you must have a stable income source. No lender would be able to approve your application unless you prove your repayment capacity.

What if you have lost your job? 

If you do not have any income, you will not be able to qualify for a personal loan. Of course, you must have some income to prove your repayment capacity. No lender is giving you any money. Lending is their business. They would expect you to pay interest in addition to what you borrow. If they find that you are unemployed, they will straightaway turn your application down.  

But there is a probability of getting these loans approved. It could happen when you have some income to prove your repayment capacity. It is not essential that you have a regular full-time job to be able to take out a personal loan. Your repayment capacity does not have to be determined by a full-time job. If you have a passive income source, it will certainly come in handy.  

Passive income sources include a variety of jobs such as babysitting, pet sitting, walking dogs, and Uber driving. All these jobs let you make some money that you can use to repay your debt. A lender would sign off on your application as long as you can afford to discharge it. The loan amount must not be so large that your budget does not have wiggle room to pay it back without any struggle with essential payments.  

It is not always possible that you will have a side gig. Getting a side gig as soon as you lose your job is not a cinch. In this case, you should try to apply for unemployment benefits. These benefits will be regarded as your income.  

Is it possible to apply for a personal loan with benefits? 

It is possible to apply for a personal loan with benefits. As soon as you apply for unemployment benefits, you can easily apply for these loans. However, it is important to bear in mind that these loans cannot be big enough. As you are on benefits, you will be lent only a small amount of money. While unemployed loans can be approved up to £1,000, most of the time, lenders do not lend more than £500.  

It is always suggested that you apply for these loans only when you are completely certain about your repayment capacity. Loans on benefits are obtained only to meet small emergencies, such as a car repair, and are paid down in one fell swoop, but they carry high interest rates. 

You will have to pay interest on top of what you borrow. Make sure that you have enough benefits to settle your debt without struggling with other essential expenses. If you had to pay off the debt by skimping on the budget for other necessities, you would have to reborrow money to meet them. As a result, you will fall into an ongoing cycle of debt. 

You should borrow money only when it is urgent and it is an essential one-off cost. Make sure that you will not struggle to meet other essential expenses. At the time of determining your repayment capacity, you should never consider your savings. They must be used to meet emergency expenses.

How to improve your chances of getting a loan with benefits? 

If you are looking to obtain loans for people on benefits from direct lenders, you should follow the following tips to improve your chances: 

• You must have a decent credit score. A bad credit score will not get in the way of applying for a loan, but it will attract very high interest rates. It might be a bit difficult for a lender to approve your application as the risk of default is so high.  
• Make sure that you do not borrow a large amount of money. Borrowing £100 or £200 is more than enough. Since these loans are to be paid from benefits, you should carefully ensure that you will be left with enough money to keep up with other expenses, too. 
• Get a side gig. If you can babysit or walk a dog, these income sources would help you have some more cash coming in. This would help you easily qualify for a loan, as this improves your repayment capacity. If you have a part-time income, you can also use it to ensure on-time payments.  

The final word 

In order to get a personal loan, you must have a stable income source, but if you have lost your job, you will still need some income to demonstrate to qualify for these loans. It is a good idea if you have a side gig, but if not, unemployment benefits will be regarded as your income. With the help of benefits, you would be able to get approval for small personal loans, which are paid off once and for all.