Banking inclusion for unemployed people: basic accounts, credit unions and safer borrowing

Why the account matters more than the loan

Benefits, wages, rent and utilities are far easier to manage through a bank account. Without one, you may pay extra to cash cheques or rely on cash, and you have nothing to show a lender later.

Banking inclusion is the set of products and rules that make an account available to people who struggle to get one: a poor credit record, an insolvency arrangement, a lack of fixed address or the loss of a job. Think of it as the first rung of the ladder; credit comes later.

Basic bank accounts in the UK

MoneyHelper explains that fee-free basic bank accounts are meant for people who do not qualify for a standard current account. Examples it lists include a poor credit history, an IVA, a debt management plan, a debt relief order or bankruptcy. You can receive wages, benefits and pension payments, pay by debit card, set up direct debits and standing orders, and bank online, by phone or at the Post Office.

There is no overdraft and no cheque book, so you cannot spend more than you hold. Fees are usually nil, though charges may apply for foreign card use, statement copies or same-day CHAPS payments.

How to apply and what to do if refused

Normally you apply first for the bank's standard current account. If you are not eligible, the bank should tell you whether a basic account is available. You will need photo identification such as a passport or driving licence; if you lack it, other documents such as letters from government bodies may be accepted.

If you are refused, ask the bank why. You can complain or try another bank. A credit union current account or a prepaid card are alternatives. Nationwide, as one example of a provider, says that its FlexBasic account is the one that does not come with an arranged overdraft.

Credit unions as a gentler lender

Credit unions are member-owned co-operatives. In Ireland, the Irish League of Credit Unions promotes personal, car and seasonal loans and offers a locator for a union near where you live or work. All loans are subject to approval, and missed repayments can put an account in arrears and affect your credit rating.

The site does not set out joining rules on its front page, so check the "How do I join" section or ask your local union. Membership typically depends on a link to the area or group the union serves.

What to compare before you borrow

Ask for the annual percentage rate, any fees, the total amount repayable and the date of each payment. Compare a credit union loan with an arranged overdraft, where Nationwide quotes 39.9 % a year above its interest-free buffer on some accounts, and with other options for your size of loan.

A simple illustration: borrowing 500 pounds at a flat 10 % a year and repaying within a year costs about 50 pounds in interest. Borrowing the same sum at 40 % costs roughly 200. The size of the gap is the reason to shop around.

Avoiding the expensive end of the market

People without a bank account or with a damaged credit record attract offers promising fast cash. Be wary of any lender or broker that charges before lending, pressures you to decide on the spot, or only contacts you through messaging apps.

Check that a firm is authorised in the country where you live before sharing identity documents. If you are already struggling with repayments, free debt advice is available through MoneyHelper in the UK, and similar services exist elsewhere.

A step-by-step order of action

Gather identity and address documents first. Then apply for a standard or basic account with a bank, or join a credit union. Once the account is working, set up a payment calendar and keep it in credit for a few months.

Only then consider a small loan, and borrow for a purpose you can explain to a lender. A stable account history is often the best evidence you can give.