If you’re unemployed or recently self-employed and are in need of a loan, you may be wondering whether any lender will consider your application. While your options may not be as broad as if you were employed full time, you likely can still find lenders willing to work with you.
Can I get a loan if I’m unemployed?
Yes, it’s possible to get a loan while you’re unemployed. Some lenders will consider you for a loan when you’re not currently employed, but you’ll need to be earning some form of income or have suitable income-earning assets to repay the loan. This could mean receiving welfare payments, being self-employed or receiving a regular deposit into your account from investments.
Often, lenders will require access to your banking history and financial documents in order to verify that you’ll be able to repay your loan.
Unemployed due to COVID-19? Consider free options before taking out a loan
If your employer has been forced to shut down due to the coronavirus outbreak, there’s relief available. Before you apply for a loan, consider these options first:
Unemployment benefits. If you were laid off, you’re likely eligible to apply for benefits by filing a claim with your state’s unemployment office. How much you’re eligible to receive depends on your state.
Disability insurance or benefits. If you already had a disability insurance policy through your employer, you might be able to receive some funding if you’re unable to work. You might also qualify for Social Security disability benefits. Note that most disability insurance plans have a waiting period, and Social Security disability benefits may take more than one appeal to qualify for.
Grants and interest-free loans. Lenders, your local government and private organizations might offer free or interest-free funding if you lost your job due to the coronavirus outbreak.
Must be employed for 3+ months and receive paychecks via direct deposit. New Mexico does not require direct deposit.
Important things to consider before borrowing
You need to be able to repay the loan. This is the main thing lenders look for when considering you for a loan. If you only want to borrow a small amount and your finances demonstrate you can easily manage the ongoing repayments, then you may be eligible. If you want to borrow a large amount of money that makes keeping up with day-to-day costs hard, the lender will probably reject your application.
Other requirements will need to be met. You’ll need to check the other eligibility requirements set by the lender before you apply. Just because they have flexible criteria when it comes to your employment doesn’t mean they’ll be flexible about everything else.
Do you receive welfare payments? This is often what allows lenders to consider you for a loan when you aren’t currently unemployed. If you receive welfare payments as all or a portion of your income, lenders will consider this when evaluating your ability to repay the loan.
Quick repayment plans. Like all short-term loans, you must repay the principal and interest by your next payday. This is why lenders want you to be employed — but if you aren’t, an alternate source of income might be enough.
High APR. Short-term loans are known to have a high APR, meaning you have to pay much more in fees and charges than you would with a traditional loan from a bank.
Automatic payments. While lenders like to list debiting directly from your bank account as a positive, if you don’t have the money to pay back your loan, it could lead to overdrawing and more fees.
The requirements differ depending on the lender and how much you’re looking to borrow. You’ll need to check the specific criteria before submitting an application, but any of the following might apply:
Earn a specific income. While you may not need to be employed, you still may need to have a regular income to apply. This is a common criteria for personal loans, so if you’re receiving welfare payments or have investment income, be sure to list that.
Your credit rating. Lenders are often able to look beyond negative marks on your credit report. Keep in mind that this flexibility has limits. For instance, you may be able to have a few late payments on your credit report, but a poor credit score could decrease your chances of being approved.
Your assets. If you own a car or a boat outright or have some equity in a property, your application may have a greater chance of being approved. This is because the lender may use this as security for the loan.
Sarah has been out of work for three months after completing her degree and currently receives welfare payments. She can get a job as a sales rep, but the trouble is she’ll need a car to make it to work every day.
She has found a cheap car to purchase from a friend for $1,500. All she needs is a quick cash loan, which she’ll be able to comfortably repay using her welfare payments — and when she gets paid from her new job, the loan repayments will be even easier to manage.
Sarah compares her short-term loan options and sees that there are lenders who will consider her welfare payments as income. After comparing what’s available and double-checking the eligibility criteria, she submits an online application and is approved for a $1,500 loan.
Her repayment dates are structured around when she receives her welfare benefits. And, after purchasing the car, she is offered the job as a sales rep.
How to increase your chances of approval
If you’re unemployed and in need of a loan, you might consider applying with another person — a partner, relative or friend — in order to boost your eligibility. Many lenders offer the option for joint applications, and some lenders even encourage you to apply with a guarantor in order for you to be eligible for a larger loan amount.
If you don’t meet the eligibility criteria, find out if you can apply with someone who does. However, this is a large responsibility the guarantor or cosigner is taking on because they’re sharing the responsibility for you repaying the loan.
You haven’t reached the end of the financing road just because you’re unemployed. If you’re able to manage your repayments with another form of income, there are lenders who will consider you.
Remember to compare all available options to get the best loan for your needs.
In addition to your credit, lenders may look at your employment status and income as a way to determine risk. If you have a stable job with regular paychecks, lenders may view your application as less of a risk for default and be more likely to approve you and offer you better rates.
You may be able to get a loan from a lender that doesn’t require a bank account to apply. These lenders may offer other options such as prepaid debit card loans or in-store cash pickup.
You’ll need to be the eligibility criteria set out by the lender in order to get a loan to start a business. Some business lenders look beyond your current employment when evaluating your application. Learn more about startup loans.
Depending on the lender, you may still be able to qualify for a loan if you’re unemployed but receive disability benefits. Compare lenders and learn more about your options with our guide to loans for people on disability.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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