Navigating the current economy without a job is tough enough. But being unable to secure a loan when you need it the most is even more frustrating.
It’s irrefutably true that the unemployed have historically been subjected to more rigorous loan pre-approval processes. And even if they somewhat make it past the preliminary evaluations, they’ll still typically qualify for lower loan amounts than their employed counterparts.
Fortunately, many financial jurisdictions have made significant efforts to correct these inequalities. It’s now easier to borrow money without job than it was a few years ago. You only need to determine your financial needs and find a suitable lender.
If you’re unemployed and need a loan, this article is for you. Read on as we delve into the finance options for the jobless, focusing on securing funding despite having no regular paychecks. But first, let’s start by understanding who constitutes ‘the unemployed’ and ‘personal loans.’
Who Are The Unemployed?
The first step in determining whether you can secure loans for unemployed is to understand who makes up this demographic.
Many people consider the unemployed merely as people with no paid jobs. However, the definition goes way deeper.
You’re considered unemployed if you meet the three criteria below;
- Currently not in a gainful employment
- Actively looking for a job
- Able and willing to work
From the above definition, it’s evident that minors (people under 18 – 21 years, depending on your state) and senior citizens (typically retirees) do not constitute the unemployed. This definition also exempts people who legally qualify for disability privileges due to physical and/or medical limitations.
The general implication is that personal loan requirements may vary considerably depending on whether an applicant is truly unemployed, one living with a disability, or a senior citizen.
What Are Personal Loans?
A personal loan refers to any amount of money you borrow for personal use.
There’s a plethora of ways you may utilize personal loans. Common uses include;
- Buying a car (for private or commercial use)
- Home renovation or improvement expenses
- Moving expenses
- Wedding expenses
- Vacation expenses
- Retail therapy
- Medical bills
- Funeral costs
- Debt consolidation
- Any unforeseen expense
The concept of personal loans existed long before the emergence of contemporary credit systems. The gradual demand for these services has also seen a rise in borrow money app services, such as Chime.
Apps have played a massive role in democratizing access to personal loans. All you need to apply for credit facilities is to install an application on your smartphone.
What Personal Loans Are Not
Personal loans are commonly confused with personal lines of credit (PLOC). However, the two are quite distinct from each other.
A personal line of credit is a loan that operates like an unsecured revolving account. It allows you to spend money against a preset limit, so your available credits get reduced as you spend towards the limit. When you exhaust your maximum spending power, you can increase the available credit by depositing money to the credit line.
Personal loans are also different from other installment loans, such as mortgage loans, car loans, and student loans. That’s despite the fact you can secure personal loans to settle part or all of your student debt, mortgage payments, and automobile loans.
Can You Access Personal Loans If You’re Unemployed?
Borrowing money while unemployed might have been next to impossible in the past. But not anymore.
It’s now possible to secure credit facilities even without active earnings. And as you shall find, the process is a lot easier than many people think.
However, there are certain criteria to meet if you’re unemployed and need money. These conditions will determine factors like the loan amount you qualify for, applicable interest rates, and repayment periods.
1. Availability of Income
Lenders understand that being unemployed doesn’t necessarily imply you cannot generate some income.
While you may not be on anyone’s payroll, there are multiple ways you could still make some money. These earnings can improve your chances of obtaining unemployed personal finance.
Below are the various types of incomes that lenders may consider as part of pre-approving you for a personal loan;
- Unemployment benefits
- Disability payments
- Alimony and child support
- Inheritance payouts
- Social Security benefits
- Rental income
- Investments, such as stocks and bonds
- Regular payments from a settlement
As you might have noticed, the above earnings mostly comprise nontaxable payments. The fact that the payouts are tax-exempt is an extra benefit in improving your chances of obtaining a personal loan. However, note that the loan amount you qualify for will typically depend on the size of the expected payout.
2. Secured versus Unsecured Loans
Personal loans fall into two major categories – secured and unsecured loans.
Secured loans, or collateralized loans, are loans where a lender requires some form of collateral before advancing credit facilities to the borrower. An example is when you borrow money against mobile home.
The following are some of the assets you may collateralize against a personal loan;
- Real estate property, such as a building or piece of land
- A vehicle, such as a car, motorcycle, or boat
- Savings account
- Certificate of Deposit (CD) account
Unsecured personal loans, on the other hand, do not require collateral as a condition for borrowing.
It’s easier to access a personal loan for unemployed with collateral than without one. That’s because the lender would simply recover the collateralized asset and use it to settle the defaulted loan.
3. Type of Lender
Numerous credit entities provide financial assistance for unemployed. Banks and credit unions are probably the top places you can borrow personal loans.
Online lenders like Chime and Cash App have also made it incredibly easy to access loans. All you need is to learn how to borrow money from Chime, which, as you shall find, is a rather straightforward process. And if you prefer Cash App, you’ll equally need to familiarize yourself with how to borrow money from Cash App.
Banks generally implement more stringent loan pre-approval requirements than credit unions and online lending companies. The conditions are even stricter if you’re unemployed and are looking for non-collateralized personal loans.
Besides these three major entities, you could also secure personal loans from close friends or family members. The primary benefit of exploring this avenue is that the terms are likely to be more favorable. It works best if you have a few wealthy folks in your social circles.
For instance, you can borrow money from a millionaire friend or relative interest-free regardless of the amount lent. You only need to have built a good rapport with them.
Last but not least, you could obtain emergency cash for unemployed through peer-to-peer lending. Peer-to-peer lending is loan agreements between businesses in the same industry or individuals in the same industry.
4. Availability of Co-signer
A co-signer is a second person who agrees to add their information to a loan application process for the primary borrower. They’re typically parents, a close relative, or friend.
A co-signer is a significant party when it comes to facilitating funding options for the unemployed. They provide key information during the loan application process that lends more credibility to the primary borrower. These include their annual income and credit score.
Co-signers may also give a formal undertaking to settle the loan if the borrower is unable to pay it back.
Note that a co-signer must have attained the age of majority. They must also be legal citizens and permanent residents of the United States. Besides, they must satisfy other terms the lender may set, such as meeting certain income or credit rating thresholds.
It’s also worth noting that a co-signer is different from a guarantor, much as they both play an instrumental role when looking for loan options for the jobless. The principal difference is that a co-signer may take responsibility for every missed payment, while a guarantor only becomes liable when a borrower falls into complete default.
5. Availability of Co-borrower
Even with a co-signer on board, you could still face a few challenges in obtaining personal loans for the unemployed. That’s where a co-borrower may come in handy.
A co-borrower is a second party with whom you’re jointly seeking financing solutions for the jobless. They stand to benefit directly from the borrowed amount as opposed to a co-signer who only pledges to pay the loan when you default.
When borrowing money as a team, the lender will typically analyze every applicant’s credentials on their own merits. However, the final decision to award the funds will depend on the lender’s assessment of the applicants.
The chances of obtaining credit options for the unemployed are higher if the other co-borrower (s) are employed, have a decent debt-to-income (DTI) ratio, and have impressive credit scores.
Access to personal loans used to be a preserve of the gainfully employed. Not anymore.
Numerous banks and financial institutions have mainstreamed access to credit facilities regardless of a borrower’s employment status. Besides, the credit market teems with unemployment loan programs which you can take advantage of to obtain personal loans in your state.
As a parting shot, remember that there are additional considerations when looking for personal loans for the unemployed. Even if you qualify for the credit facilities, compare lenders against their interest rates, loan application fees, collateral requirements, borrowing limits, and repayment terms before choosing the right one for you.