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Unemployment is a stressful situation, and it can feel even worse when you also need a personal loan while you are unemployed. The good news is that it is possible to qualify for a loan even if you are unemployed.
Here’s what you need to know about getting a loan when you’re unemployed and what you can do to increase your chances of getting a loan approval.
You can use Credible to do this Compare personal loan rates from multiple lenders, all in one place.
Where to get a loan if you are unemployed
If you are unemployed, you can usually find loans from some banks, credit unions, and online lenders. Although lenders consider sources of income when considering borrowers for a loan, it is not the only factor. Some lenders offer secured loans – where you post collateral for the loan – which may be easier to obtain than unsecured loans.
Do not consider alternative sources of income when applying personal loans from a bank, credit union, or online lender. Many consider sources such as Social Security payments and any income you’ve earned as a freelancer or side hustle.
It’s important to shop around, compare multiple lenders, and be open about your situation. That way, you don’t waste time filling out loan applications that you’re more likely to get turned down.
Should You Get a Payday Loan If You Are Unemployed?
It can be tempting to apply for a payday loan when you are unemployed because they offer it fast financing and do not require a credit check. But these short-term loans come with extremely high fees — equivalent to a three-digit APRS — and short repayment periods. If you can’t repay the loan by the due date, you’ll have to keep borrowing money, and there will be fees and penalties tacked on to your loan balance, which can send you into a debt cycle.
Even if you are unemployed, you should only consider payday loans as a last resort.
How to get a loan when you are unemployed
Your ability to get a personal loan is not only dependent on your employment status. Here is how to get a loan if you are unemployed:
Determine how much you need to borrow
Make sure you don’t borrow more than you need so you don’t end up paying more interest than you need to. It’s important to make sure your monthly payments fit into your budget. You can use one personal loan calculator to help you figure out how much you can borrow and what your monthly payments could be.
Check your credit
By looking at your credit report and score, you can determine which lenders are most likely to approve your loan. Visit AnnualCreditReport.com to request free copies of your credit reports from the three major credit reporting agencies. Many lenders disclose their creditworthiness requirements upfront. Knowing your score in advance can help you avoid applying for credit from lenders whose minimum credit standards may be unattainable.
Shop around and compare lenders
When researching your personal loan options, compare lenders based on factors such as interest rates, loan terms, and the amount you can borrow. It’s also important to look at each lender’s eligibility criteria to find those who will work with them unemployed people.
Apply for the loan
Once you have decided on a lender, officially apply for the loan. You will need to provide documentation, which usually includes:
Once you submit your application, lenders will review your credit history and personal information to determine if you qualify. If approved, it may take up to a few business days to receive your loan funds, depending on the lender and how quickly your bank processes the transaction.
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Factors that lenders consider when applying for a loan
Lenders consider several factors as soon as you apply for a loan. They use these factors to determine the likelihood that you will pay off your loan on time:
- Credit Score — In general, the better your credit score, the more likely you are to qualify for a loan with a lower interest rate. If you’re unemployed but have good credit, you should still be able to qualify for a loan. However, if your score is lower, you may not be approved or you may receive offers for higher interest rates.
- Debt to Income Ratio — Lenders look at your debt-to-income ratio, or DTI, to determine if you have enough income to afford a new loan. To determine your DTI, divide your total monthly debt payments by your gross monthly income. (Note that unemployment benefits count as income when you look at your DTI.) If lenders consider this number too high, it could indicate that you don’t have enough income to meet your expenses and debt repayments Afford.
- payment history – How you pay off existing loans gives lenders an indication of how likely you are to pay off a new loan. It’s also one of the most important factors that credit bureaus consider to determine your creditworthiness.
- Income – Lenders will most likely require proof of regular income when you apply for a loan, but it doesn’t always have to come from an employer.
What counts as income?
When you apply for a loan, lenders understand that your income may not come from an employer – everyone’s financial situation is different.
Here are some common sources that lenders count as income:
- Goverment aid – Sources include disability payments, Social Security, and unemployment benefits.
- estate — If you recently received money as a beneficiary, you may be able to include that amount in your application.
- investments — Recurring income from sources like dividends could show lenders that you are able to pay back a loan.
- Other income – This may include sources of income such as alimony or child support.
- Retirement or Retirement Income — Money you receive regularly from these sources usually counts as income.
- rental income – Any money you make from short-term or long-term leases counts as income.
- Spouse Income — Some lenders may allow you to use this as a source of income if you are married.
Because it can be riskier for a lender to take out a loan when you’re unemployed, it’s important to make sure your personal loan application is rock solid to increase your chances of approval. Here are some ways to improve your chances of getting a loan when you’re unemployed:
- Add a co-signer. Applying with a co-signer, especially one with good credit and an employment status, shows lenders that someone is capable of repaying the loan. Adding a co-signer can come with risks – they’ll take responsibility for paying back the loan if you’re unable to do so – so it’s important to talk to them about how you want to pay off the loan.
- Apply for a smaller loan amount. In many cases, your loan could be denied if you apply for a large amount of money. Applying for a smaller amount instead could lower your risk factor and reassure lenders that you’re more likely to pay it back.
- Apply for a secured personal loan. When you apply for a secured loan, you provide an asset as collateral, such as a loan. B. a car or a house. Secured loans are less risky for a lender, so you may have a better chance of being approved. But think carefully before you apply: If you default on your loan payments, the lender can confiscate your collateral.
When you’re ready to apply for a personal loan, Credible makes it easy to do so Compare personal loan rates within minutes.
If you’re not interested in a personal loan or are having trouble getting one, consider these alternatives when you’re unemployed:
- 0% APR Credit Card — Depending on your credit rating, you could be approved for a credit card that offers 0% APR on purchases and balance transfers for a set period of time. Remember that you must pay off the entire balance by the end of the introductory offer, otherwise you will start accumulating interest at the card’s regular rate. Also, transfers from credit card balances can incur fees, so check if they’re worth it first. If you don’t qualify for a 0% APR credit card, a regular credit card can be a way to fund expenses quickly, even though you may be paying high interest rates.
- Borrow from family or friends — Asking a friend or family member for a loan can have some benefits, such as: B. that you do not have to pay any interest. But make sure you borrow from someone you have a good relationship with. It’s also a smart idea to put the exact terms of the loan in writing so everyone is on the same page and you minimize any potential strain on the relationship.
- Home Equity Loan or Home Equity Line of Credit (HELOC) — Homeowners might consider one of these financial products that use your home equity as collateral. Because it is a type of secured loan, you risk losing your home if you fail to make your loan payments. Also consider possible fees, such as B. Registration fees or prepayment penalties.
- 401(k) loan — Depending on your 401(k) provider, you may be able to borrow the money you have in this account. However, this should be the last resort because you will use up your retirement savings and stop increasing the amount of money you take out. Other consequences are tax debts if you do not repay the loan on time. Even if you pay it back, you’ve lost some of the tax-free growth of those funds.