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A £500 loan: the cheapest ways

What a £500 loan really costs, and the cheaper or free routes — grants, an interest-free advance, or a credit union — to try first.

Written by the benefitmoney.co.uk editorial team · Last reviewed 10 September 2026

Need £500? Before you take a commercial loan, it is worth knowing what it really costs and which cheaper routes could cover it — sometimes without repaying anything at all.

£50.23at a credit union’s 3%/month cap, over 12 months

£602.77total repaid — the legal maximum a credit union can charge

42.6% APRand most credit unions charge less

Worked with the calculator on our credit union loans page. A high-cost short-term lender would cost more. Checked 10 September 2026.

Cheaper — and free — options first

A grant you never repaygrantYour council’s Crisis and Resilience Fund, white-goods grants, and help with energy bills.
Interest-free from the DWP0%A Budgeting Advance on Universal Credit, or a Budgeting Loan on older benefits.
The cheapest borrowing there isA credit union loan is capped by law at 3% a month and judged on your circumstances, not a credit score.

If you still need to borrow

Check any firm is on the FCA Register before you apply, and check whether it is the lender or a broker — a broker just passes your details on, sometimes for a fee.
Read the total amount repayable and the monthly payment, not just the headline.
Treat "guaranteed approval", “no credit check” and "everyone accepted" as warning signs — no legitimate UK lender can promise a loan before checking you can afford it.

Risk warningBorrowing costs money, and missing payments can make things worse. If your income is a benefit or a low wage, only borrow what you can comfortably repay, and rule out the free and interest-free help above first. Free debt advice is available from MoneyHelper and Citizens Advice.

Frequently asked questions

What is the cheapest way to borrow £500?

If you are on Universal Credit, an interest-free Budgeting Advance can cover up to your limit. After that, a credit union is the cheapest commercial-style loan, capped at 3%% a month.

How much does a £500 credit union loan cost?

At the 3% monthly cap over 12 months, about £50.23 a month and £602.77 in total — and many credit unions charge less than the cap.

Can I get £500 as a grant?

Possibly — your council’s Crisis and Resilience Fund and other grants do not have to be repaid, though amounts vary.

Sources

FCA — check a firm on the Financial Services Register. Checked 10 September 2026.
Credit union loans — the 3% a month statutory cap and a worked cost example. On this site.

This page is independent. We are not a lender and not a credit broker, and we are not connected to the DWP.