Should I get a personal loan before quitting my job? | finder.com
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Getting a personal loan before quitting your job

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You know you need to save up. But getting a personal loan can also help you earn big down the road.

Leaving your job can be a great way to take your career (and salary) to the next level. Figuring out how to pay for your next move isn’t always easy though. You might be worried about not having enough savings to quit, but that shouldn’t trap you in a job you’re determined to leave.

Cutting down on your spending or even taking out a personal loan could help you grow during unemployment or a career transition.

First, how much should I save before I quit my job?

Ideally, you should have enough savings to cover at least six months of living expenses before leaving a job. How much is that? You can calculate this by first making a budget for yourself based on the past few months of spending. Don’t include any unusual expenses like that trip to Thailand you took two months ago. Also deduct any work-related expenses like deposits into your 401(k) and transportation costs.

Once you have an idea of what you need to live a reasonably comfortable life, multiply that by six. If you have this amount saved up before you quit, you should be OK until your next gig.

Don’t have enough saved?

You may be able to make leaving your job still work out financially. Let’s be real: Saving up for six months of living expenses can take a long time, especially if you’re underpaid. But even if you only have enough cash to cover a couple months, you have other options.

Cut down on spending

Instead of getting rid of only the unnecessary expenses like that gym membership you never use or popcorn of the month subscriptions, go through your recent bank statements and be brutal about where you can cut back on spending. Maybe you spend a lot at restaurants and bars, or maybe you buy too many socks. Cut back in any area that isn’t absolutely essential. Even something as simple as avoiding ATM fees by only withdrawing cash at your bank can help.

Want to get extreme? Consider moving back in with your folks if they live nearby. Rent alone in an expensive city like New York or San Francisco can account for half of your monthly expenses. Just be prepared to start feeling like a moody teenager again (trust us).

Get a personal loan

Taking out a personal loan along with cutting spending can help you afford job training and classes or experiences that can build your career.

To save money, go for a loan with a longer term and no prepayment penalties. That way, you can afford the low monthly payments while you’re unemployed and avoid interest by paying off your loan early once you get a job.

How to get a personal loan before leaving your company

Applying for a personal loan ahead of ending employment is crucial. Almost every lender lists employment as a basic income requirement — though not all do. To get a decent rate, you’ll typically need to make a certain amount of money each year. Apply for your loan well in advance of your two weeks notice to get the best rates. Get the funds in your account before your last day for peace of mind.

Take care of other aspects of your finances before you apply. Lenders consider your credit score, credit report, debt-to-income ratio (DTI) and employment status when deciding on your rates, fees and loan amount. Check your credit report and correct any errors by contacting the offending creditor and your credit bureau. Make an effort to pay off your debts to lower your DTI. Hold off on canceling any credit cards and avoid other moves that could accidentally hurt your credit score.

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Rates last updated November 17th, 2018

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Min. Credit Score Max. Loan Amount APR
Monevo Personal Loans
Quickly compare multiple online lenders with competitive rates depending on your credit score.
550
$100,000
3.34% to 35.99%. (fixed)
Credible Personal Loans
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
Good to excellent credit
$100,000
4.99%–36% (fixed)
LendingClub Personal Loan
A peer-to-peer lender offering fair rates based on your credit score.
660
$40,000
6.95% to 35.89% (fixed)
SoFi Personal Loan Fixed Rate (with Autopay)
No fees. Multiple member perks such as community events and career coaching.
680
$100,000
6.99% to 14.87% (fixed)
NetCredit Personal Loan
Check eligibility in minutes and get a personalized quote without affecting your credit score.
550
$10,000
34%–155% (Varies by state) (fixed)
Marcus by Goldman Sachs Personal Loans
Consolidate your debt or pay off large expenses with competitive rates and no fees.
Good to excellent credit
$40,000
6.99% to 24.99% (fixed)
Even Financial Personal Loans
Get connected to competitive loan offers instantly from top online consumer lenders.
580
$100,000
4.99%–35.99% (fixed)
Avant
Conveniently check your loan options without affecting your credit score.
580
$35,000
9.95%–35.99% (fixed)
OneMain Financial Personal and Auto Loans
An established online and in-store lender with quick turnaround times. Poor credit is OK.
Varies
$30,000
16.05%–35.99%* (fixed)

Compare up to 4 providers

What to do with the funds

What you do with your loan is largely up to you, as long as you aren’t breaking any laws. But you might want to have an idea before you apply, as some lenders ask what you’re going to use your funds for in the application.

If you don’t have a concrete idea on what you’ll use the money for, here are four solid ways to use a personal loan after you leave your job:

1. Take some classes or get certified

Taking time off from work to take courses in your field could give you a competitive edge for your next job or help you switch careers. A class that offers a certification usually shoots you into a higher pay bracket. This is particularly useful in a field that’s constantly evolving, like computer programming.

If this is something you’re interested in, apply with a lender that allows you to use your loan toward non-degree educational purposes. You might want to contact your program’s financial aid office to see how they suggest financing your courses.

2. Volunteer

Volunteering is another way to gain work experience in a new field and could even lead to a new job. It’s an opportunity to learn new skills in a risk-free environment and can give you a fresh perspective on your career by breaking the habits of your old job. Plus, you might be able to travel abroad at a relatively low cost.

Check postings on idealist.org or foundations like the Bill and Melinda Gates Foundation or the Ford Foundation. If you volunteer for a US service like the Peace Corps or Americorps, you can defer repayments for some federal student loans and move a year or two closer toward having your loan forgiven.

3. Travel

Traveling is not the same as vacationing. It requires work, can be uncomfortable and can end up being more expensive than you originally planned. But it can give you a fresh perspective on life and your career, teach you new skills — like a new language — and make you a more appealing candidate when you apply for jobs.

  • Travel hack: Apply for jobs in an area you’d like to explore. You can visit other countries on weekends and holidays without having to make huge financial sacrifices. Plus, you might not have to pay income taxes, depending on which state you live in.

4. Start your own business

Maybe you quit your job because of a passion or desire to be your own boss. It’s generally not a great idea to start your business with a personal loan. Most new businesses fail. However, there are a couple of things you can do to get it off the ground even before you leave your job.

Got some extra vacation days? In most states, you’re eligible to either cash those in or use them to get a head start on your new entrepreneurial endeavour. Use that time to set up a crowdfunding campaign, and seek out investors to cover startup costs. A personal loan can help you cover your personal expenses while your business is getting off the ground.

Financial checklist before quitting your job

  • Build an emergency fund. Because you don’t have the safety net of a job, make sure you have an emergency fund should you get into an accident or need money in a hurry.
  • Take care of your retirement account. Different employers have different policies when it comes to retirement savings. Some allow you to roll over your funds into another retirement account, making you responsible for deposits each pay period. You might also be allowed to leave it where it is, though you might have to pay some administrative fees. Ask your HR department what your options are.
  • Pay your bills ahead of time. That way you don’t have to worry about leaving room in your budget for utilities and essentials for a few months.
  • Take advantage of your health insurance. Chances are your employer health benefits are better than your coverage once you’re unemployed. Get a checkup, see your dermatologist about that weird mole and get refills on prescriptions before that stuff starts to cost an arm and a leg.
  • Cash in on your vacation time. Unless you’re starting a new business and need vacation days to get it off the ground, consider holding off on taking vacation days if your state allows you to take cash instead. Use that money to help finance your next adventure — you’ll have lots of free time soon anyway.
  • Take out that mortgage. New jobs look bad on mortgage applications and being unemployed is even worse. As long as you’re sure you can comfortably manage making monthly mortgage payments, you might want to do it now while your employment history looks stable.

Have a 401(k) loan? Try to repay it before leaving your job

Your 401(k) is connected to your job, and so is your loan. If you leave before paying it off, you could end up having to pay up to 40% of your loan amount in penalties and taxes. If you can’t afford to pay it off just yet, consider staying with your employer a little longer.

How 401(k) loans work

Bottom line

Leaving the stability of a job can be scary, but also an exciting career move. Having a nice sum of money saved to cover living expenses makes quitting more comfortable. Taking out a personal loan to fund training, travel or help tide you over while you launch a new business could help you earn more money in the future — but try to save up to avoid borrowing first.

Frequently asked questions

Anna Serio

Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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US Personal Loans Offers

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Credible Personal Loans

Get personalized rates in minutes and then choose a loan offer from several top online lenders.

Monevo Personal Loans

Quickly compare multiple online lenders with competitive rates depending on your credit score.

LendingClub Personal Loan

A peer-to-peer lender offering fair rates based on your credit score.

SoFi Personal Loan Fixed Rate (with Autopay)

No fees. Multiple member perks such as community events and career coaching.

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US Personal Loans Offers

Important Information*
Credible Personal Loans

Get personalized rates in minutes and then choose a loan offer from several top online lenders.

Monevo Personal Loans

Quickly compare multiple online lenders with competitive rates depending on your credit score.

LendingClub Personal Loan

A peer-to-peer lender offering fair rates based on your credit score.

SoFi Personal Loan Fixed Rate (with Autopay)

No fees. Multiple member perks such as community events and career coaching.

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