Unemployment can lead to a distressing financial situation. Even if you carefully built an emergency fund for situations like this, eventually, the funds will run out.
If you don’t have a new job lined up and cannot keep up with your expenses, then turning to a personal loan while unemployed could be an option for you.
Although not all unemployed individuals will qualify for a loan, some lenders are willing to work with you. If you can find the right loan, then it could give you the financial breathing room you need while you continue searching for a new job.
How unemployment affects loan eligibility and terms
In most cases, unemployment means that you’ve lost all of your income or at least the majority of it. With that, it is not surprising that your unemployment will affect your loan eligibility and terms.
A lower income is not the only way that your loan eligibility could be affected. With a lower income, your debt-to-income ratio will likely be affected. At that point, your credit score could take a hit because your debt-to-income ratio is a major component.
Essentially, this amounts to a double whammy effect on your ability to take out a loan. You’ll likely find that most lenders aren’t willing to work with you. Those who are willing to help you out with a loan typically require large interest charges for that opportunity.
As you continue to explore your loan options while unemployed, keep in mind that you probably won’t have access to the best loan terms. But you will likely be able to find a loan that helps get you through the financial hardship.
What types of loans are available for people with little to no income?
If you have no income, then your loan options will be limited. But a few that you can pursue include:
- Personal loans. Personal loans often are available to those who are unemployed. But you’ll likely be facing higher interest rates due to a less attractive application. However, this issue could be solved by finding a cosigner with a good credit score and stable income to vouch for you.
- Secured loans. With a secured loan, you put an item of value on the line to bank up your promise to repay the loan. Since this is less risky for lenders, you might find better terms. But you’ll risk losing the item if you are unable to repay the loan.
What to consider before taking out a personal loan while unemployed
Before you dive into the deep end and apply for the first personal loan that will accept you, take a minute to consider your options. Although you might feel like you are at the end of your financial resources, stretching things out as far as possible is important.
When you take on a personal loan while you are unemployed, you may add additional financial stress to your situation. Unless you have an end in sight, taking on more debt could lead to more financial troubles.
But if you’ve exhausted all of your options – then taking out a personal loan to cover your basic expenses during this crisis is an avenue that you should explore.
How to get a loan when you are unemployed
If you have decided that pursuing a personal loan is the best course of action, then here’s what you’ll need to do.
Consider your other income sources
Although you are unemployed, that doesn’t necessarily mean that you have no income. There are other income streams that lenders will be able to take into consideration.