Christmas can be a difficult time for any parent, but try to imagine how much more stressful it must be for low-income families on social security benefits.
‘Your Credit Union’, based in Kensington, West London, are reporting a rise in the number of families taking out ‘benefit loans’ this Christmas.
The loans can be secured against a person’s state benefit, including Child Benefit, Working Tax Credit, Disability Living Allowance, and even Carer’s Allowance. The family then ask either the Department for Work and Pensions (DWP) or HMRC to take money from their benefits to repay the loan.
The practice will undoubtedly worry charities and others working with cash-strapped families, who may later find themselves short of money as the loan is gradually repaid.
But it would seem that credit unions are championing the so-called ‘benefit advances’, because it supposedly provides them with a “reliable way of the loan being repaid”.
Your Credit Union’s William Rhodes told the website 24Housing: “As Christmas gets closer we are seeing more and more people coming to us to apply for ‘benefit loans’.
“Even if people have poor credit histories, we are usually able to help them, because effectively we are getting a reliable way of the loan being repaid.
“Loans are typically in the region of £500 to £600 to help get them through the expense of the Christmas period.
“Things are very tough at the moment: there are caps on state benefits; the cost of living is on the rise; and London is the most expensive place to live in the country.
“We see a number of people with no-where left to turn. Some have had to pawn things like their wedding rings, or are in the grip of door step lenders or loan sharks.
“A so-called ‘Benefit Loan’ means they can secure some cash for a loan that they probably wouldn’t ordinarily get, or qualify for.”
Mr Rhodes said loans secured on benefits “are paid bang on time”, claiming they also provide low-income families with a way of increasing their credit rating.
“For instance, you might see someone’s credit rating being tipped from ‘fair’ to ‘good’ or ‘poor to fair’”, he said.