Government Employee Bad Credit Loans

Updated: October 07, 2024 Author:

Alternative credit for public sector workers is available through CDFI’s such as Salad Money, No Interest Loan Schemes, and Credit Unions.

Public sector workers tend to have lower incomes and can find it difficult to borrow from mainstream organisations because of their affordability criteria.

A bad credit record compounds this problem.

Other options exist besides the inevitable Buy Now Pay Later schemes and Payday loans, which attract very high charges.

Ethical lenders, both for-profit and not-for-profit, are emerging to service this sector, recognising the debt Society owes to people who choose to work for lower pay in public sector roles. 

According to the Office for National Statistics (ONS), there are just under six million employees in the public sector as of December 2023, an increase of 138,000 from December 2022. 

With a market segment that large, it’s too sizeable for the industry to ignore.

Public sector work has advantages, including job security and attractive pension schemes.

However, many government employees really do pay the price during their careers, with salaries that often lag well behind those in the private sector.

With the recent cost of living crisis, it’s no surprise that public sector workers and government employees are looking to borrow money to make ends meet.

Those rejected by mainstream lenders because of a bad credit history often turn to Payday loans or BNPL schemes—Buy Now Pay Later—like Klarna and Clearpay.

There is a very active sector in the marketplace targeting low-income households.

However, these lending options tend to create more problems than they solve and can start a downward spiral of unaffordable borrowing and persistent debt.

On a low income, affordability is another problem. Partner that with what lenders refer to as an adverse credit history, and it’s difficult to know where to turn.

Bad Credit Loans for Government Employees

Community Development Finance Institutions (CDFI)

Salad Money is an independent CDFI providing loans to public sector staff.

They are a for-profit social enterprise formed to help people who cannot secure funding via mainstream lenders.

Also referred to as a community lender, they mainly provide loans to NHS and other public sector workers.

They are partnered with some NHS trusts and other public sector employers, providing all applicants with free financial education and support.

The company also helps promote better financial health by letting people know if there are benefits they could claim.

Salad Money loans are designed to be short-term and range from £500 to £1,000 with decisions made and funds transferred swiftly.

What makes them good for people with bad credit is that they use open banking fo affordablity assessment, negating the need for credit checks.

They are one of only a handful of responsible lenders able to provide you with no credit check loans.

Credit Unions

Credit Unions are always a good option for people on low incomes with bad credit records.

They are not-for-profit cooperatives that bind their members via a shared link, such as working in a particular industry or living locally.

Credit Unions require people to become members and sometimes save with them before they consider lending money.

Charges are capped at an average of 3% per month (approximately 42.6 APR) in Scotland, England, and Wales. In Northern Ireland, it’s lower at 12.68% APR.

These loans are usually more suited to applicants with a bad credit history.

Every Credit Union operates in a slightly different way, but some are oriented towards public sector workers, like bluesandtwos.org, which has links with various public sector organisations based in Lancashire and the Northwest. 

Where there are partnerships in place with employers, leaflets or posters are more likely to be displayed in staff canteens and locker rooms signposting the services they provide.

Also note that the NHS Credit Union accepts people who work in the third sector that are contracted by the NHS, as well as those who live in the same household as a current member.

Other Loan Options

Budgeting Loans

Budgeting loans are provided by the government to those on certain state benefits, including Income Support, Income-based Jobseeker’s Allowance, Pension Credit, and Income-related Employment and Support Allowance.

If you work in the public sector and receive eligible benefits, you may be able to apply for a budgeting loan. You don’t need to be a public sector employee to apply.

A budgeting loan can help pay for clothing, household items, white goods, advance rent payments, and costs associated with moving house or getting a new job. Repayments are deducted from your benefits.

No Interest Loan scheme

NILs, or No Interest Loan schemes, are a new government-backed project that was piloted in Manchester in 2022.

People who were refused loans were able to be referred into the scheme to borrow sums from £100 loans to £2,000 loans.

This Treasury-backed scheme is partly run by Fair4All Finance, with the funding allocated from the Dormant Assets Scheme.

You can’t apply directly though- borrowers need to be referred to the scheme – and any loan will be a one-off.

Referral points will be housing associations, credit unions, and lenders who have agreed to partner with Fair4All Finance on this programme. 

One of the eligibility criteria is that an applicant has applied and been rejected elsewhere for an interest-based personal loan.

It’s possible that further down the road, borrowers will be able to make a direct application.

Watch this Space!

The cost of living crisis has affected Credit Unions as well as public sector workers; some have wound down, with others absorbed by their rivals, leaving only 240 now across the UK.

In October 2023, the Bank of England raised concerns about Credit Unions’ management and governance, particularly their ability to withstand the prevailing recession.

In 2019, the Financial Conduct Authority requested that the government review the use of Credit Unions to develop a healthier alternative to Payday lenders.

This initiative was sidelined during the pandemic, but with the recent hike in interest rates, a record £2 billion being borrowed, and 41% of those loans being required just to meet living expenses, it is now tabled for further scrutiny and may well see better financial support for the financially vulnerable.

Finding loan funds for public sector workers on low incomes and with bad credit is a problem that isn’t going away any time soon.

However, there are options out there that avoid high-cost, short-term borrowing, and the landscape is constantly evolving.

Public sector workers should watch this space carefully as the UK moves out of recession and regulators are considering ways to lower the risks of high-credit borrowing in Britain.