Does A Personal Loan Affect Universal Credit?

This blog answers the question “Does A Personal Loan Affect Universal Credit?” A personal loan does not directly affect your claim for Universal Credit. This blog explains how to apply for a Universal Credit personal loan.

Does A Personal Loan Affect Universal Credit?

A personal loan adds to your debt and is recorded on your credit report. Universal Credit looks at your credit report to ascertain if you qualify for its payments or not. Universal Credit will want to know if you will be able to make your personal loan repayments.

A personal loan is usually granted for between £1000 and £25000 The cheapest loans on offer for £1000 to £3000 are available from Barclays, Novuna Personal finance, AIB (Allied Irish Bank), M & S Bank and The AA Bank.A personal loan does not require you to provide an asset as collateral to the lender.

Which facts do I need to consider before applying for my Personal Loan?

You need to consider some requirements before applying for your Personal Loan. You need to first compare the lending options available to you before getting a personal loan. You need to shop for the best interest rate or APR available for your borrowing. Once you have decided on your lender you can proceed to apply for the loan.

When deciding to approve your personal loan your lender analyzes your credit rating through the Debt to Income Ratio. Your credit report consists of information about your financial affairs. Under the Consumer Credit Act and the General Data Protection Regulation you can request a credit file from your lender.

The advantages of a personal loan include being able to borrow more money than with a credit card, and being able to decide the length of your loan repayment. A Universal Credit Advance or personal loans can be applied for existing claimants of Universal Credit who have informed them about a change in circumstances but have not been paid the extra amount reflecting these changes.

You can apply for a Universal Credit Advance through your online account, by dialling the universal credit hotline or mentioning the request in a meeting with your JobCentre Plus Work Coach. If you have cleared your first Universal Credit Assessment period you must apply for a Universal Credit loan through the hotline.

A Personal Loan adds some debt to your credit rating but it does not adversely affect Universal Credit payments. The Personal Loan will only be granted if you have a reasonable credit rating or a good credit rating. If you end up missing your personal loan repayment dates or are unable to pay it back on time, your credit rating could suffer.

What are the disadvantages of personal loans?

Disadvantages of a personal loan include a high credit rating requirement and no chances of paying 0% interest. Managing a personal loan also turns into a long term financial responsibility and must be completed successfully. Failing to pay off your loan you might have to end up declaring yourself bankrupt, suffer from a devalued credit rating and have to pay interest on your missed loan repayments.

You will also lose the ownership of items you have listed as a security for your personal loan. You will have to pay a fee of £25, for missing an interest payment. A county court judgement is filed by the lender against you for recovery of debts. If you fail to pay back your debt within 30 days, the county court judgement will be mentioned on your credit file for the next six years.

What are the alternatives to personal loans?

The following alternatives are available to getting a personal loan:

  • Remortgaging is an alternative to getting a personal loan. Remortgaging means that you are getting a new mortgage to replace or pay off your previous mortgage. It should preferably be at a better interest rate than the previous mortgage. The common reasons for a remortgage are that homeowners are nearing the end of their payback period.

During these last few years of the payback period the interest rate on the mortgage reverts to the Standard Variable Rate. This rate is much higher than the overall APR on the mortgage and might be unaffordable for you if you still have a large amount to pay on your mortgage.

Reasons for remortgaging include concerns about interest rate hikes in the country. If your current mortgage APR is at the lowest possible rate you will now be safe from further interest rate increases from the Bank of England. Other than the value of the property you are buying has risen over time.

If the house bought by a mortgage is worth more now, you can be eligible for Loan To Value deals. These deals compare the value of the property with the size of your overall mortgage sum.

  • Guarantor Loans are taken out with the security of a guarantor who promises to make repayments for the loan in case you fail to do so. A guarantor needs to be a person with a good credit history, a family member, a person who owns property and someone who is aged over 21 years.
  • You can also choose to get a home equity loan by borrowing money against your home’s real property value. With a home equity loan you are issued a fixed amount of loan at a constant interest rate.

What is the Universal Credit budgeting advance (loan)?

The Universal Credit budgeting advance is a loan granted after verifying evidence of the purpose of getting the loan (which is going to reduce your universal credit payments)

You may be able to take out a loan as part of your universal credit if you have to cover a specific expense – this is called a “budget advance”.

If you get an advance on your budget, you get a reduction in universal credit payments until you pay the loan amount. This will normally be longer than 12 months.

You can request a budget advance for things like:

  • For a single purchase shopping item
  • For expenses related to your job
  • For rainy day expenses, for medical expenses or house repairs
  • For routine repairs to your home
  • For holiday travel expenses
  • Health related emergency loans for events like pregnancy
  • For funeral arrangement expenses
  • For moving costs or rental deposit payments
  • For purchases of essential household items

Universal Credit helps you with payments of living costs

What are the eligibility requirements for claiming Universal Credit payments?

Universal Credit payments can be claimed by you if you are

  • Unemployed
  • Are working part time work or are self employed
  • Disabled or incapacitated for work

To claim you must:

  • live in the UK
  • be aged 18 
  • be below the State Pension age which is 65 years
  • have £16,000 or less in money, savings and investments

If you are 16 or 17 years of age, you can apply for Universal Credit :

  • If you are suffering from a medical condition or disability 
  • If you are caring for a severely disabled person
  • If you are responsible for the care of a child
  • If you live on the same property with your spouse are responsible for a child and your partner can claim Universal Credit
  • If you are pregnant and in or beyond your 11th week of pregnancy
  • If you have delivered a baby in the last 15 weeks
  • If the person does not have any parental support or support from their local council

In case you default on your loan you will have the judgement of the county court stated on your credit file for the next 6 years and also will not be able to borrow freely during this time period.

The resulting bankruptcy restrictions intended to recover your missed loan repayments will make you financially unstable for as long as they are in place.

What documents do I need to take with me to my Universal Credit interview?

You must bring at least one photo ID with you to the Jobcentre Interview with Universal Credit. Photo IDs include:

  • A valid passport 
  • A UK driver’s license
  • A national identity card only for EU nationals

In case you are renting privately, you will need to share the amount of monthly rent you are paying and the address of your landlord. You can use a landlord reference letter or a tenancy agreement with you as proof of this.

You have entered your accommodation expenses in your online application the Department for Work and Pensions will contact your landlord to check if these details are correct. 

If you have an owner occupied property, you need to present Universal Credit with proof of your mortgage agreement. This can be a mortgage agreement or bank statements showing the repayment of a mortgage.

You should bring your bank statement with you to the courtesy call. You must provide the details of your bank, mortgage bank or credit union bank account such as the account number. It can be your credit card or a bank statement. If you don’t have bank statements, you can request them from your bank .

 If you are using internet banking, you can print a statement from your online account.

Do I need proof of my income and savings?

Yes, you need to have proof of your income and savings.

You need details on how much you earn from your job. You can bring your recent paychecks or bills if you are self-employed. When you’ve quit work, grab your P45. You must also bring proof of:

  • any income owed to you, such as overtime wages
  • all the details of the job you are about to start
  • any income that does not come from work, such as from a pension or insurance plan
  • any other benefits you receive, such as benefit letters or a bank statement
  • any savings – and a statement to show the details
  • any other “capital” you own, such as stock or property

What Is A Bankruptcy Restriction Order?

A Bankruptcy Restriction Order is a court order used to punish any fraudulent activity by the person undergoing bankruptcy such as (under The Insolvency Act 1986 section 358 Bankruptcy Offence) Fraudulent Disposal of Property or Absconding.

Reasons for getting a Bankruptcy Restriction Order being made against you may include:

  • Getting rid off your assets for less than their actual value ( with the intention of preventing the official receiver from selling them off to recover your unpaid debts)
  • Lack of conformity with the demands of the official receiver (Section 353 – Non Disclosure and Section 356 False Statements)
  • You have in the past borrowed funds which you knew you could not pay back on the given repayment schedule.
  • Having paid off your creditors in the wrong sequence (with reference to priority debts). 
  • Fraudulent financial behaviour (which may include falsifying credentials or credit rating to obtain loans or mortgages)
  • Deliberately ignoring your finances so that your debts increase due to mismanagement.

The issuance of a Bankruptcy Restriction Order will extend your bankruptcy status restrictions for a period of between 2 and 15 years.


This blog post addressed the question “Does A Personal Loan Affect Universal Credit?” You must ensure that you choose your lender cautiously and manage your finances to pay back your personal loan on time. Failing to repay a personal loan can destroy your credit rating and lead to long term restrictions on borrowing under a bankruptcy restriction order.Unless you face major loan repayment problems the personal loan will not affect your Universal Credit claim.

Please feel free to comment on the content or ask any questions in the comments section below :

Frequently Asked Questions (FAQs) : Does A Personal Loan Affect Universal Credit?

If I have children, what other documents do I have to take with me to the Universal Credit interview?

If you have children, you will need to take the following documents along with you to the Universal Credit interview:

  • All your children’s birth certificates
  • Evidence of any childcare expenses, such as an invoice or receipt 
  • The reference number of the Child Health Benefit

You will find your reference number on any of the letters you have about Child Benefit. The reference number begins with CHB and consists of 8 numbers and 2 letters

How Do I Apply To Become Bankrupt?

You can only apply to become bankrupt online by clicking here . The fee for claiming bankruptcy is £680. Your application needs to be supported by the following documents:

  • Copies of your latest utility bills including council tax, gas, water usage (your property’s rateable value multiplied by the tariff charge), and electricity bills.
  • Details about the benefits you are receiving. Also information about any pension age support payments you might be on.
  • Copies of your payslips (these show the number of hours you have worked)
  • Copies of letters from a bailiff, who has attempted to make you pay off your council tax debt 
  • Copies of any unpaid council tax bills from previous years
  • Fines that you have received from a court (which may be the crown court or your county court etc). These fines will be entered as part of your outstanding debt while going into bankruptcy.
  • Details of your unpaid debts may include credit card debt, mortgage debt, council tax debt, or student loan debt.
  • Copies of your credit card statements
  • Copies of any hire purchase agreements you have entered into (stating the agreement status in case of entering into personal bankruptcy)
  • Details of any loan repayments you still have to make
  • A copy of your (current year’s) council tax bill (unpaid or partially paid)
  • Copies of rent agreements with your landlord.
  • Copies of any mortgage agreements to document mortgage repayments that need to be made in the future.

Your online application containing this uploaded and scanned documentation evidence can be saved. It will be complete for submission once you have paid the £680 fee (in full). Help or advice for filling out a bankruptcy application form can be obtained from the Money Helper website.

The bankruptcy period is usually 12 months. 

Can Universal Credit help me cover my mortgage payments?

Yes, Universal Credit can help you to cover your mortgage payments. It can also help with loans (up to £ 200,000) if you have a  Universal Credit contract which uses your property as collateral.

To get this help, you need to provide evidence of your mortgage agreement. This could be in the form of:

  • a copy of the mortgage agreement from your lender
  • an updated overview of mortgage payments
  • a loan repayment agreement
  • bank statements showing the payment of the mortgage amounts


Universal Credit Regulations 2013

The Insolvency Act 1986 Section 267 Grounds of A Creditors Petition

The Insolvency Rules 2016