You don’t need to have a job to qualify for a personal loan. But you will generally need to have some proof of income.
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If you find yourself unable to make ends meet while unemployed, a personal loan may be a useful tool. However, you’ll need to prove you can pay the loan back, which is why it can be difficult to qualify. While there are obvious benefits to getting the funds you need, there are also drawbacks to consider before applying.
Losing a job can be an incredibly stressful experience. Between suddenly having no income and trying to line up your next gig making ends meet can feel impossible. If you find yourself asking, “Can I get a loan while on unemployment?” you’re not alone.
While getting approved for a personal loan without steady employment can be challenging, it is possible in many cases Here’s what to know about getting a personal loan while collecting unemployment benefits
Factors Lenders Consider for Borrowers on Unemployment
When reviewing an application for a personal loan, lenders want to see that you’ll likely be able to repay the loan. They’ll dig into a few key factors:
Income
For borrowers who are employed, lenders look at income amount and stability. But being on unemployment doesn’t mean you have $0 income. Your unemployment benefits can count!
Other sources of income may also help demonstrate your ability to repay the loan, including:
- Spousal income
- Social Security benefits
- Retirement account withdrawals
- Rental income from investment properties
- Annuity payments
- Freelance work
- Side hustles
The lender may average your income over a period of time to account for fluctuations. Providing documentation to back up all your income sources is key.
Credit History
Your credit history gives insight into how you’ve managed debts in the past. Key factors lenders may consider include:
- Credit scores – Aim for a minimum of 580
- On-time payment history
- Credit utilization ratio – Keep balances low compared to limits
- Age of credit history – Longer histories preferred
- Past bankruptcies or collections
Maintaining good credit is important. If your score has taken a hit after losing your job, wait to apply for a personal loan until it recovers.
Debt-to-Income Ratio
Lenders want to confirm your total monthly debt obligations aren’t excessive compared to your income. To calculate your DTI:
Total Monthly Debt Payments / Gross Monthly Income = Debt-to-Income Ratio
Aim to keep your DTI below 40% when applying for a personal loan. The lower the better for approval odds. If your DTI is too high, paying down balances before applying could help get it to an acceptable level.
Collateral (For Secured Loans)
If you don’t qualify for an unsecured personal loan, another option is a secured loan backed by an asset you own. The lender can seize and sell the asset if you default on the loan. Common collateral includes:
- Car title
- Savings account
- Certificate of deposit
- 401k account
You get to keep using the asset while paying back the loan. But be careful – defaulting means you could lose the collateral.
Getting a Loan While on Unemployment – Step by Step
If you need emergency funds during unemployment, here are some steps to follow:
1. Calculate Your Income
Add up income amounts from all your current sources – unemployment benefits, freelance work, etc. Have documentation ready.
2. Check Your Credit
Get a free credit report and check your scores. If they’re low, hold off applying and focus on improving your credit first.
3. Lower Your Debt-to-Income Ratio
Pay down credit cards and other debts to lower your DTI before applying. Every percentage point helps.
4. Gather Key Documents
In addition to income verification, you’ll need identification, bank statements, tax returns, and contact info for references.
5. Compare Lenders
Compare estimated rates and loan amounts from online lenders and local banks or credit unions. Read reviews and complaints.
6. Apply!
Choose your best loan option and complete the application online or in person. Be ready to provide documents to support your income.
7. Accept Your Loan
If approved, accept the loan if the terms are what you expected and can manage. Then put the funds to good use!
Risks of Loans While Unemployed
While loans allow access to funds when you need them most, it’s smart to consider the risks too:
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Missed payments – Without steady employment income, keeping up with payments could be difficult. Falling behind can damage your credit and lead to expensive late fees.
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High interest rates – With less predictable income, lenders may charge higher rates, raising the cost of borrowing.
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Aggressive collections – Defaulting on a personal loan can result in aggressive collections calls and lawsuits if you cannot pay the balance.
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Losing collateral – For secured loans, not repaying the loan means the lender may seize your car, bank account funds, or other assets.
The risks make it critical to only borrow what you can realistically afford to pay back. Use extra caution when getting a personal loan while on unemployment.
Alternatives to Loans When Unemployed
If the risks seem too high, consider these options instead of a personal loan:
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Credit cards – While interest rates are usually higher, you likely already have a credit card and can start using it right away. Just be sure to pay on time!
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401k loan – You can borrow from your 401k balance and pay yourself back interest. No credit check needed. But weigh the pros and cons first.
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Payment plans – Contact creditors directly to request adjusted payment plans or temporarily lower payments until you find a new job.
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Buy now, pay later – For one-time expenses, BNPL plans like Affirm let you split costs over several interest-free payments.
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Friends and family – Ask loved ones for a zero-interest loan you can pay back once employed without the burden of fees or credit damage.
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Unemployment insurance – File for unemployment benefits from your state as soon as possible after losing your job. UI provides weekly income while job hunting.
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Aid programs – Research government and nonprofit programs offering emergency financial assistance. Grants, food benefits, and healthcare can help ease costs.
While a personal loan can provide necessary funds in between jobs, exhaust your options before applying. Weigh the benefits against the risks to decide if it aligns with your situation and financial health. With prudent planning, you can make it through a period of unemployment until your next opportunity.
Frequently Asked Questions (FAQ) About Getting a Loan on Unemployment
Can I get a loan on unemployment from my bank?
You may be able to. Visit your bank or credit union and explain your situation – they may be willing to work with you. Having an existing relationship helps versus applying cold to an online lender.
What credit score do I need to get a loan while unemployed?
Each lender sets their own requirements, but you’ll generally need fair credit – a FICO score of at least 580 – for the best approval odds.Scores below 500 will make getting approved very unlikely.
Is there guaranteed loan approval for the unemployed?
Unfortunately there are no guarantees when it comes to personal loan approval, even government loan programs have eligibility requirements. Your best option is strengthening your application – improve your credit, lower debts, and document income sources.
What is the easiest personal loan to get while unemployed?
Easiest option would be a secured loan or borrowing against a 401k, which look at assets rather than income. Also consider asking family for a no-fee loan. Credit cards are readily available too, but ensure you can pay off the balance.
What can I use as collateral if I don’t have a job?
Savings accounts, CDs, retirement accounts, and cars make good collateral if you own them free and clear. The lender attaches a lien and can seize the asset if you default. But be cautious about risking the asset.
How long can you get unemployment benefits?
Unemployment benefits typically last up to 26 weeks. Extensions may be available depending on your state and the overall job market conditions. The average weekly benefit amount is $378.
The Bottom Line
Getting approved for a personal loan without steady employment is challenging but feasible in many cases. Prepare a strong application by documenting all income sources, keeping credit scores high, minimizing debts, and providing collateral if possible.
Weigh the risks before borrowing to ensure you can manage repayment and avoid default. A personal loan can serve as a temporary bridge to cover costs during unemployment while you get back on your feet.
Foster care and adoption subsidies
Foster parents and those who have adopted a child may receive subsidies that are meant to help with the costs of raising a child, and can include monthly payments. These subsidies can also be used on your personal loan application.
Alimony or child support
If you receive alimony or child support payments, those can also be used on your personal loan application. You will likely have to provide proof of payments — and potentially proof that this income will continue for a certain period of time.
If your spouse earns money, you may be able to use their earnings on your loan application. However, keep in mind that they may have to become a co-borrower if you plan on going this route. Not all lenders accept co-borrowers.