How to Get Loans for Those That Are Unemployed?
When you are unemployed, it is typically a challenging time in your life. There could be many reasons why you may find yourself unemployed. No matter what the reason, being unemployed can be a hard hit on your finances. You may have to find some other ways to pay your bills. You may be surprised to find that it is possible to get a loan even when you are unemployed. There are some things that you need to know when you are considering loans for unemployed. Continue reading to find out all the information that you need to know.
What is a Personal Loan?
When you are considering loans for unemployed, it is usually what is called “a personal loan”. It is important to understand what a loan provides. A personal loan is when you ask a lender, like a credit union or bank, to borrow a specific amount of money. A personal loan is used for whatever you determine. Which is different from other types of loans that are for specific items. For example, a mortgage loan is used to pay for a house. In addition, a personal loan can be used to pay for any expenses or bills that you have and even to consolidate debt.
What’s Next if I’m Approved?
Once a lender approves you for a personal loan, you are required to pay back the loan. This repayment is based on the loan agreement you sign. You must pay a fixed amount of money for a set period of time. These are called installments. You make these payments until the debt is completely paid. The lender charges you interest on top of the amount you borrow. The actual amount you borrow without fees and interest is called the principal. When you make your monthly payment, it reduces the principal and pays the monthly interest.
The Difference Between Secured & Unsecured Loans
Finally, there are secured and unsecured loans. A secured loan has collateral attached to it. This means that if you do not pay the loan, you can lose the item you put up for collateral. For example, car loans and mortgages are secured loans because the car or house is the items that are collateral. Loans that are unsecured do not have collateral attached to them.
Should I Consider a Loan?
If you are wondering if you should consider loans for unemployed situations, you should consider different things:
- If you need a loan and making the payments is not going to cause you stress, then yes, you should consider it.
- But if you think that making the payments is not something you will be able to make on time, then you should definitely think twice. You should not go into the situation blindly. Many people look at their immediate need, which is to pay the rent and put food on the table. However they miss the fact that they are going to have to repay that loan. Usually, the first payment is due in a month. Perhaps, you may be able to negotiate the date your first payment is due, which may buy more time. However, that is not a guarantee.
In most cases, the lender wants their first payment in about 30 days. You have to consider how you are going to make those payments. You may have a job lined up, or you may be on a temporary layoff, and you just need something to help you get through. Those are situations when it may be a good idea to think about getting a loan.
Even though you need money right now, you still have to think about the situation over the long term. If there is no potential job lined up in your future, you may want to see if there are alternative options available to you besides a loan. For example, if you own a house, you may be able to refinance your house. That way you get a lump sum payment while lowering your monthly mortgage amount. Refinancing may help you in two ways.
What Factors are Considered For a Personal Loan?
When it comes to obtaining loans, the lender usually looks for your job as a source of income. However, as you’re considering a loan being unemployed don’t be afraid. Indeed, lenders also know that a job is not the only source of income an individual can have. Therefore, a lender will look to see if you have other forms of income.
Different Forms of Income:
These forms of income include, but are not limited to:
- Disability or unemployment benefits
- Child support
- Rental income
- Settlement payments
A personal loan lender understands that everyone has a different situation. If your situation is outside of what lenders might consider normal, it is helpful to reach out to them and have a conversation. Sometimes, it may make the lender more willing to approve your application if you can explain your situation.
When you are married and live with your spouse, a lender may allow you to use your spouse’s income as an alternative income for yourself. The lender may require you to have your spouse as a co-applicant on the loan for this to happen. It is important to note that you do not have to disclose certain types of income when applying for a loan if you do not want to. The Equal Credit Opportunity Act protects you from disclosing all income types, including child support, alimony, and public assistance. However, if you are unemployed, you may want to disclose these other streams of income as a way to increase your chances of being approved. Your income is not the only criteria that a lender considers when approving your loan application.
When interested in a loan, credit score and credit history are important to lenders when determining if they should approve your loan. Especially in the case of an unsecured personal loan. A lender is going to look at your credit score and payment history to determine your creditworthiness. Your credit score also gives a lender some indication of how likely you are to repay the loan on time. A lender does not like it when they provide you with money with a repayment agreement and then do not meet the terms of your loan. A lender is also interested in knowing if you have any accounts currently in collection or previous bankruptcies.
Of course there is no guarantee that good or excellent credit may balance out a lack of income or a steady stream of income, but it certainly can be helpful. It is certain that if you have bad credit and no income, that works against you when trying to obtain a loan.
A lender also looks at your debt-to-income ratio when deciding about a loan. Your debt-to-income may hurt you a bit if you are not employed. But remember, there are other streams of income that count, not just a job!
What is your debt-to-income ratio?
Your debt to income ratio is relatively simple. It is the amount of debt that you have compared to the amount of money you have coming in as income. This is one of the ways a lender determines if you can repay a loan. When you have significant debt and low income, the chances are high that you are not going to be able to pay it all. To a lender, this means you could have late payments or missed payments. You also may not pay back the loan at all. These are all the points a lender must consider when determining if they want to lend you money.
How to determine my debt-to-income ratio?
An easy way to determine your debt-to-income ratio is to determine your total monthly debt payments and then divide that by your gross monthly income. Your gross monthly income is the amount of money you receive before any taxes or deductions are removed. A lender typically likes to see a debt-to-income ratio below 30 percent. If you do not have a steady stream of income, the lender may want to see a significantly lower debt-to-income ratio. You can ask what factors the lender uses to determine your loan application. This gives you some idea of how likely you are to get a loan.
What are the Risks of Borrowing Money While Unemployed?
Defaulting on Your Loan
There are risks associated with getting loans, and it’s even more accurate with no job. You may be in a position where you do not have a choice, but it is always helpful to fully understand the pros and cons. This allows you to make the best decision you can for yourself and your family. There are risks to you and the lender when you take on a loan without a job. You could default on the loan. This is the term that lenders use to describe when you do not fulfill the terms of the loan agreement.
You may have missed payments. Missed or late payments are probably the most obvious risk to both you and the lender when you take on a loan with no job. When you are not able to make the payments, this hurts your credit score. When an account ends up in collections, it causes your situation to become even more stressful. If you are only going to miss a payment or two, or those payments will be late, contact the lender. If you make the lender aware of what is happening, they may be willing to work with you. You may still have late fees, but your account may not go to collections and or have a negative impact on your credit.
The Lender Could Try to Protect Himself
There are some things a lender may do to protect themselves if they are not certain you will repay the loan. You may be approved for the loan but with high-interest rates.
Remember, an interest rate is what the lender adds to your loan. It is basically the fee they charge for allowing you to borrow money. Your credit score usually dictates the interest rate you pay. Ultimately this means that the better your credit score, the less money back you pay. A high-interest rate can almost double your monthly payment amount. When a lender feels that you are a credit risk, they may let you borrow money but shorten the amount of time you have to repay the money. A lender may feel that the longer they give you to repay the money, the less likely you will meet your agreement’s terms. In an effort to prevent this, they give you less time for repayment.
Are There Alternatives to a Personal Loan?
While your situation may seem dire and a personal loan may be the only option, you should take time to make sure you have considered all the alternatives. There may be some other options available that you have not yet considered.
Using a credit card
If you have a credit card, you may be able to make some use of that. A credit card can be a consideration if you know your unemployed status is temporary or you are waiting for a payout. You can potentially take a cash advance from your credit card or use your credit card to make some payments.
You want to pay attention to the interest rates associated with a cash advance from your credit card. These are often high. However, if you know you will be able to pay it off in a month or two, this may be a good option.
Getting a line of credit
You may be able to open a line of credit. This is similar to a credit card in that you are allowed to borrow a set amount of money, but you do not have to use it all at once. You only make payments on the amount you use. When you make payments, that amount goes back into the pool of money you can use until the terms for the line of credit are up.
The benefit to this is you only make payments on the amount of money you are using, but with a personal loan, you ‘use’ the entire amount and have to make payments on that amount. However, you still have to be approved for the line of credit in a similar way as you would for a personal loan.
You can attempt to get a secured loan, which is one that has collateral attached to it. A secured loan means when you do not make the loan payments, the lender can take your item as theirs, and you lose it. This may be a dangerous option if you think there may be a point at which you cannot repay the loan. If you use your car as collateral but cannot repay, the lender will take your car.
Borrowing from investment/retirement account
You could consider borrowing from an investment account or your retirement, but if you borrow from them, you are taking money away from what you may have available to you when you retire.
If you are able to borrow from these types of accounts, you might be able to repay them to limit the loss. However, if you are not able to borrow and you have to remove the money completely, you can only do this if you qualify for a hardship. This may not be the best option, but it allows you to avoid taking out a loan.
Trying to find an online side-job
The other solution you could think of is to get a small job just as a temporary source of income. There are tons of online possibilities to get what’s usually called “a side-gig” which could help you out for a while.
With the pandemic, more and more online jobs have been made available online so you can find some jobs you can do from home. And in the end, you might even finally like it and get it as a first job! Don’t you think?
Asking friend or family
The last option you may want to consider is borrowing money from your family or friends. This may not feel like a good solution to you, but it might be a good option. Many people have been hit hard financially in the past few years. If you have friends and family that have not, they may be more than willing to lend you money to see you through the tough spot you are in.
And if they need some insurance, you can still consider setting up a loan agreement between you and them!
Where Else Can I Find Help?
When you are trying to make sound financial decisions at a time when you are not financially sound, it is challenging. You have to consider your immediate needs and the long-term implications.
You do not have to make these decisions without help. The Goalry Mall provides an amazing number of resources and calculators to help you make the best decision. We can provide you information and alternatives that you may not have considered. Check out the information we have available to you before you make a decision.
When you are facing being unemployed and bills that need to be paid, it can be a difficult time. You may feel like you need to make a quick decision that seems to give you what you need at the moment. However, those are not always great decisions for your long-term needs. Before determining if getting a personal loan is the best option for you, it is essential to consider the pros and cons and make sure you have considered all the options available to you.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.