Articles – Budgeting Loan & the DWP Social Fund

What Is An IVA?

An IVA or Individual Voluntary Arrangement is a repayment plan that helps debtors with large amounts of debt to repay a reduced amount of what they owe. It is a legally binding agreement between you and those that you owe money too. Some debts, including your mortgage, cannot be included in the agreement and you will be expected to repay this amount in full. The amount of money that you owe under an IVA will usually be reduced by up to 75% following agreement with your creditors.

An IVA is meant as an alternative to bankruptcy and while it can help greatly reduce debt levels, there are pitfalls and negative aspects to an IVA. The IVA will usually stay on your credit record for a period of 6 years and you will find it more difficult to obtain credit during this period. However, if you are in such a position where an IVA is your best option then you are unlikely to be able to successfully apply for credit during this kind of time period anyway.

The IVA is a formal agreement so a failure to meet an agreed repayment means the IVA could fail. It is also unlikely that you will be able to make small changes if you are struggling to live within the terms of your IVA, although a major change such as a change in employment means that you may be able to amend the terms of your agreement.

In order to be eligible for an IVA you typically need to have a minimum of £10,000 unsecured debt. Usually, this debt will be with a number of creditors although agreement may be reached with a single creditor to reduce debt, if it is in the best interest of the company concerned. A minimum repayment of £100 per month is normally required; however, the more money you owe, the more you will usually be required to pay.

You will need to use an Insolvency Practitioner who will aim to make arrangement with you and your creditors in a bid to make payments against your debt. They will look at your personal circumstances, determine how much you can afford to pay after necessary household expenses, and how much creditors are willing to accept. Using an Insolvency Practitioner will improve your chances of having creditors come to an agreement over the money that you need to repay.

An IV, or Individual Voluntary Agreement is meant as an alternative to bankruptcy that will help a debtor clear debts of £10,000 or more, typically over a period of 5 years. It is a formal agreement and it is necessary to stick to the agreement once made. It can help you become debt free and meet agreed regular repayments once the terms have been agreed.

Crisis Loan Vs Budgeting Loan

Both budgeting loans and crisis loans are emergency loans provided by the Social Fund and meant to help out in times of financial difficulties. Both are interest free loans and both are available to individuals and families that are on a low income. However, whereas the budgeting loan does require that you have been receiving specific benefits for a period of 26 weeks or more, this is not the case with a crisis loan.

Amount You Can Borrow

A budget loan offers up to £1,500, assuming that you do not owe any other money to the Social Fund. A number of factors will be considered when considering your application but this is the maximum amount you can borrow. With a crisis loan, however, there is effectively no upper limit. If accepted, you will be able to borrow the amount that you need to borrow to help you through the difficulties you are facing.

Eligibility

A budgeting loan requires that you have been receiving, for a period of 26 weeks or more, Income Support, Jobseeker’s Allowance, Employment and Support Allowance, or Pension Credit. However, there are no such criteria for borrowing money with a crisis loan. You do need to be aged 16 or over, though, and you need to be able to show that you are indeed suffering from some form of crisis.

Crisis Conditions

There are a number of things that may be considered a crisis for the purpose of borrowing money from the Social Fund. Floods, fire, or burglary are among some of the possible cases. If you are due to start receiving benefits and do not have enough money to cover expenses or other bills then this too may be considered a reasonable reason for application.

Expenses Covered

A budgeting loan can be used for expenses like new clothing or repairs to the home. If you are awarded a crisis loan then this can also be used to cover living expenses, rent in advance, travel expenses if stranded away from home, and repaying emergency credit on a power meter as well as other expenses.

Terms

You will be expected to pay either form of loan back although both are interest free. If you are receiving benefits, your repayments will be taken directly out of these according to the terms agreed when you accept the loan. You will have up to a maximum of 104 weeks to repay either form of Social Fund loan and, because you do not need to be receiving benefits to receive a crisis loan, these can also be repaid by cash, postal order, or cheque on a weekly basis.

Social Fund Loans

The Social Fund offers a number of different forms of credit and grant to help those on low incomes to be able to pay for their daily living expenses. You should choose which applies to you most accurately and then make your application for this, ensuring that you show your eligibility to help improve the likelihood of your loan application being accepted.

A Guide To Budgeting Loan Eligibility

A budgeting loan is a tax free form of loan offering money provided by the Social Fund and offering assistance to meet payments that those on a low income may not necessarily be able to budget for. Low income individuals and families are able to apply for the loan, which is in actual fact just one of several forms of loan offered by the Social Fund and through the Department of Work and Pensions, or DWP. If you are considering applying then you should first determine whether or not you are eligible for the loan:

Benefits

You must be claiming one of the various income related benefits that are available. This includes the following:

• Income Support
• Income Related Employment and Support Allowance
• Income Based Jobseeker’s Allowance
• Pension Credit

Furthermore, you will only be eligible for a DWP budgeting loan if you have been claiming one of these benefits for a period of 26 weeks or more. A short break of a few days in the middle of your claim period may still be accepted but longer breaks will not.

Loan Fund Use

Budgeting loan eligibility is also determined by how you will use the funds from the loan. It is designed as an emergency loan and is usually provided for any emergency requirement that you are unable to budget for in a typical month. Uses include:

• Buying new clothes
• Buying new furniture
• Covering expenses to look for work
• Covering expenses to attend your new job
• Travelling expenses
• Help with funeral costs
• Help with maternity expenses
• Advance rent
• Removal expenses to move to a new home

Social Fund Debts

You may apply as an individual or with your partner. However, during your application, it will be determined whether or not you already have any outstanding debts with the Social Fund. This may mean through another budgeting loan or through a crisis loan. Typically, any one individual may only be allowed up to £1,500 in Social Fund debt and if you have an existing Crisis Loan then this will be taken into account when calculating the amount you are able to borrow.

Applying For Your DWP Budgeting Loan

If you meet all of these budgeting loan eligibility criteria and you need to access the money that may be made available from such an emergency loan then you can apply now. Download the form via the BudgetingLoan.co.uk website and you could have access to the money provided within a few weeks.