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Will my disability impact my chances of getting a loan?
Not in itself. Lenders have a legal obligation to treat you just like any other borrower, so they can’t just refuse your application because of it. Anti-discrimination laws apply.
Lenders can refuse an application because of factors like affordability or credit history.
If the problem is your credit history, you may want to take a look at our bad credit hub, which features a series of guides on how to deal with bad credit and how to improve your credit score. As a rule of thumb, the first thing to do is understand the reason why your credit score isn’t good. Sometimes it may simply be that you don’t have much of a credit history yet.
Things to consider before getting a loan
Before going for a loan, consider whether it’s actually the smartest choice for your finances. Try thinking about:
- What you need the money for. In some cases (for example if you need to buy a car or to adapt your home to make it accessible) you may be entitled to some extra help from a government scheme. Make sure you check that out before taking out a loan. Moreover, if you need money to pay off your monthly bills or some other regular expense, taking out a loan will only worsen your problem instead of making it better. Loans are generally a good idea for big or unexpected expenses, but they can’t help you with your day-to-day spending.
- How long you need it for. Standard personal loans are meant for borrowing money in the medium or long term, whereas if you only need some flexibility with your monthly payments you may be better off with a credit card.
- Can you afford to borrow money? Loans are never for free, so first and foremost you should consider them a cost. If you aren’t sure whether you can meet the monthly repayments, you may want to look at possible alternatives.
- Can you settle things differently? If you’re looking at borrowing money because you’re already in debt (for example, you’re behind with the bills), see if you can get in touch with the company you owe money to and agree on a repayment plan first.
What are my credit options if I’m on low income or have bad credit?
Compare different financial products before applying to make sure you get something that works well for you. You may want to consider one of the following:
- Government schemes. There are different options available. For example, if you’re on benefits you may be eligible for a budgeting loan. This can be used to cover a range of expenses and it’s interest-free, so you’ll only have to pay back what you borrow.
- Credit unions. Credit unions are no-profit cooperatives that lend money to members in financial difficulties at a low rate. They’re funded through other members’ savings. Since they aren’t about making money, they’re often able to offer you a better deal than traditional lenders.
- Guarantor loans. If you have someone who can guarantee for you (that is, who’s willing to take legal responsibility for your debt) you may be able to access credit through a guarantor lender. However, interest rates can be high compared to traditional bank loans.
- Credit-builder credit cards. If your credit score isn’t great, these are generally a good idea because they can be used to improve it. They have loose eligibility criteria but normally a high APR (annual percentage rate), so they’re no good for borrowing money in the long term. You should only use them to spread out your expenses within the billing cycle, and clear your balance in full every month every time you can.
- Specialist lenders. Some lenders specialise in offering credit to people with low income and a poor credit score. They can be a solution, but you should be careful because they may offer sky-high interest rates that won’t help you solve your money problems.
Will it cost me more because I’m disabled?
A disability could indirectly affect deals you can get your hands on, because some lenders might not be keen on an income supported by disability benefits. If you have bad credit, that can also make it harder to bag a competitive rate.
If that sounds like you, you may find that if you’re accepted for credit, you get offered a higher rate or a lower amount. Keep in mind that the rate advertised by lenders is generally a “representative” APR – which means that the majority of people will get it, not that everyone will get it.
Dos and don’ts
- Check out your credit score and credit report.
- See if you can get government help first.
- Consider different credit options before going for a loan.
- Compare lenders to get the best deal.
- Look at the eligibility criteria before applying.
- Take out a loan if you can’t afford to meet the monthly repayments.
- Apply for multiple lines of credit in a short time, especially if you’ve just been rejected.
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