Many people are currently facing unemployment, and some might wonder whether they can qualify for an unemployment loan. According to the U.S. Bureau of Labor Statistics, the civilian unemployment rate as of May 2020 is 14.7%. Qualifying for a loan while being unemployed is possible as long as you have good credit and another income source.
Some people are also unemployed by choice because of retirement or other reasons. Regardless of why you are unemployed, a lender might approve you for a loan if you can present evidence that you can make your payments on time.
What factors will lenders want to see?
If you are applying for a loan while you are unemployed, a lender will want to see several things. Your credit history should demonstrate that you regularly make your payments on time.
You should not have any missed or late payments in the past few years and have no foreclosures or bankruptcies. Your credit score should be good and meet the lender’s minimum score requirements for personal loans. If your score is not in the good or excellent range, you might improve your score within a few months by paying down your credit card debt balances to bring the amounts down to less than 30% of the limits.
Having another source of regular income will also be important. While you do not necessarily need to receive income from a paycheck, you will need to show that you have a reliable source of income that is enough to pay for your monthly expenses and to provide you with enough to make your loan payments.
What types of income sources might qualify you for a loan?
When you apply for a loan while you are unemployed, the lender will want to look at your financial records to verify that you have another source of income. Unemployment benefits can be included as a part of your income, but you should not solely rely on them because they are temporary.
Lenders might accept any of the following alternative income sources to approve you for a loan:
- Retirement fund payments
- Pension fund payments
- Social Security benefits
- Disability payments
- Annuity payments
- Trust account payments
- Regular dividend or interest payments
- Veteran’s benefits
- Public assistance benefits
- Income from a cosigning partner or spouse
Showing the lender that you have access to substantial savings or will have access to a substantial amount of money in the future can also help you to qualify. For example, if you have a pending contract to perform freelance work, a pending offer of employment, a pending sale of an investment property, or an upcoming inheritance, you might be approved for a loan.
What are some things to think about before applying for an unemployment loan?
Any time that you are thinking about applying for a loan, you should honestly consider whether you will be able to repay the amount borrowed as agreed. If you miss a payment or default on your loan, your credit can take a significant hit that can harm you for a long time.
If you have doubts about being able to make your monthly payments throughout the repayment period, you might want to avoid borrowing money or to borrow a smaller amount you can repay. When you are unemployed, a lender may be cautious and might alter your loan offer as a result. You might be offered a smaller loan amount or a loan with a shorter loan repayment term. A lender might also charge a higher rate of interest and loan origination fees. Finally, your lender might ask you to agree to automatic payments from your bank account to ensure that you will be less likely to miss your payments.
Can you get a personal loan if you have bad credit?
It will be more difficult for you to be approved for a loan if you are unemployed and have bad credit. However, you might still be able to find a loan if you are willing to agree to a higher rate of interest and can wait for several months.
If you can wait before applying for a loan, you should take immediate steps to improve your credit score. Try to pay down some of your other debts, make all of your payments on time, and review your credit reports to challenge any inaccurate information on them. Bringing up your score by several points could make it likelier for you to get loan offers with lower fees and interest rates. You might also want to consider applying for a loan through an online lender instead of a traditional bank or credit union. An online lender might offer lower fees and have loan options for people with less than stellar credit.
What if you are not approved for a loan?
If you need some money to work with but do not qualify for a loan, several options might work for you. If you have a family member or friend who has a job and good credit, you can reapply for a loan with a cosigner. However, make sure that you can make your payments on time so that your friend’s or family member’s credit is not damaged.
If you own your home and have built up substantial equity, you might be approved for a home equity line of credit. This is a line of credit that is secured by the equity you have in your home. You will need to make monthly payments for any amounts you draw from your HELOC, and if you default, the lender could foreclose on your home.
Other alternatives might include car title loans, cash advances on your credit cards, or selling items online or through a pawn shop.
Checklist for applying for an unemployment loan
When you prepare to apply for a loan while you are unemployed, the following checklist might be helpful:
- Check your credit score.
- Compare loans to find the best rates.
- Ask about costs, fees, and penalties.
- Think about how much money you need.
- Consider whether you will be able to afford the monthly payments for the life of the loan.
- Consider automatic payments to get a discount.
- Gather documents to show your alternative income sources.
Is this loan the right choice for you?
Losing your job can be very stressful. If you are unemployed, being approved for a personal loan can provide you with some security while you concentrate on looking for a new position.
While it can be more difficult to secure a loan while you are unemployed, it is not impossible. Consider an online lender to secure a better rate and easier terms. Make sure that you only borrow the amount that you need, and make sure to take a look at your budget to ensure that you will be able to afford the payments. A personal loan can help to bridge the gap during your period of transition.
Have you taken out personal loans in the past? What do you think people should know when they are applying for loans while they are unemployed?