Nonprofit loans for people on low incomes

When a bank has turned you down and the only offers left online seem to carry eye-watering costs, it is easy to assume there is nothing in between. In the UK there is: a small but real sector of lenders that are run on a not-for-profit or social-purpose basis. They still lend money that has to be repaid, and they still check affordability, but their aim is to serve people that mainstream lenders overlook rather than to maximise returns for shareholders.

This guide explains who these lenders are, how they differ from each other, what they usually look at when you apply on a low income, and when a grant or free advice should come before any loan at all.

What "nonprofit" means for a lender

A nonprofit lender does not pay profits out to private owners. Any surplus is ploughed back into lending, lower charges, advice services or, in the case of credit unions, a dividend to members. That does not make the loan free: the lender still has to cover staff, bad debts and running costs, so interest is normally charged. The difference is in purpose and behaviour. These organisations tend to:

• look at your whole situation, including benefits income, rather than relying only on an automated credit score;
• lend smaller amounts that people on tight budgets actually need;
• offer repayments matched to when your money arrives, weekly or monthly;
• refer you to debt or benefits advice when a loan would make things worse.

The main types of not-for-profit lender in the UK

Credit unions

Credit unions are financial co-operatives owned by their members. You join because you share a "common bond", typically living or working in a particular area, or working for a certain employer. Many encourage you to save a small amount alongside your loan, which helps build a cushion for next time. In Great Britain the interest a credit union can charge is capped by law at 3% a month on the reducing balance, which is about 42.6% APR. Many charge far less, especially on larger loans or to members with a savings history.

Community development finance institutions

CDFIs are social lenders that provide personal loans, and sometimes small business loans, to people who struggle to get credit elsewhere. Their prices are generally higher than a credit union's because their borrowers are higher-risk and the loans are small, but they are usually much cheaper than payday or doorstep lending. Responsible Finance, the trade body for the sector, publishes information about where community lenders operate. Some of this lending has been supported by Fair4All Finance, an organisation funded from dormant assets to widen access to affordable credit.

Charities and benevolent funds

Some charities, trade or professional benevolent funds and faith organisations make small interest-free loans, though most of their help is in the form of grants. If a grant is possible, it is always better than a loan. Our guide to interest-free borrowing options covers these in more detail.

Help to check before applying for any loan

A nonprofit lender will often ask whether you have tried other help first, and it is worth doing so. Depending on where you live and your circumstances:

• check you are receiving every benefit you are entitled to, using an independent benefits calculator or a local advice service;
• ask your council about local welfare or crisis support, or the Scottish Welfare Fund, the Discretionary Assistance Fund in Wales, or Discretionary Support in Northern Ireland;
• if you receive Universal Credit, ask about a Budgeting Advance; on older benefits or Pension Credit, a Budgeting Loan may be possible;
• contact your energy or water supplier about hardship schemes and social tariffs;
• look at charitable hardship grants for one-off costs such as a cooker or a bed.

What a nonprofit lender will look at

Expect a proper affordability check. Lenders regulated by the Financial Conduct Authority must assess whether you can repay without hardship. In practice they usually ask for:

• proof of identity and address;
• recent bank statements, often for one to three months;
• benefit award letters or payslips;
• details of rent, bills and existing debts.

Receiving benefits is not a reason to refuse on its own; what matters is whether the repayment fits. If your existing debts already take most of your spare money, a responsible lender may decline and suggest advice instead. Read our page on borrowing when debts are already heavy before applying anywhere in that situation.

Comparing the cost honestly

Lower than a payday loan does not automatically mean cheap. Always compare:

• the APR, which includes interest and compulsory fees;
• the total amount repayable in pounds, which is what really leaves your budget;
• the length of the loan: a longer term means smaller payments but more interest overall;
• whether you must save alongside the loan, and whether you can access those savings.

Ask the lender for a written quote showing the total repayable before you commit. If two offers have similar APRs, the one with the smaller total and a repayment date that matches your income is usually the safer choice.

How to find a genuine nonprofit lender

Search the credit union finder run by the sector's associations, ask a local Citizens Advice office, or speak to a housing association or council money adviser, who often know which community lenders operate locally. Before handing over any details, check the firm on the FCA Financial Services Register and make sure the contact details match those on the register.

Warning signs

• a "nonprofit" or "charity" lender that asks for a fee before paying out the loan;
• approaches through social media, WhatsApp or text messages you did not request;
• pressure to decide immediately, or a guarantee of approval without checks;
• requests to pay by gift card, cryptocurrency or transfer to a personal account.

Real nonprofit lenders never charge an upfront fee to release a loan. If you are unsure, stop and ask an adviser.

When a loan is not the answer

If you are already behind on priority bills such as rent, council tax or energy, or you are borrowing to repay other borrowing, free debt advice should come first. Services such as Citizens Advice, StepChange, National Debtline and MoneyHelper can help you deal with arrears, ask creditors to freeze interest, and, in England and Wales, check whether the Breathing Space scheme could pause most creditor action while you get help. A nonprofit loan works best for a one-off, clearly defined cost that your budget can genuinely absorb.

For a wider picture of affordable borrowing routes in Britain, see our overview of UK loans for low-income households, and compare these lenders with community and solidarity lending.