Getting a loan while unemployed might seem like an impossible thing, right? How would you pay back the loan? Will a lender even consider your application?
It's possible to get a loan in the UK, even if you are unemployed, as long as you have a solid credit history and, can show lenders that you have a stable source of income.
What lenders will look for when you’re unemployed
- Good repayment history: A pattern that displays good repayment habits with minimal late payments, can show lenders that you can manage your debt
- Good credit score: Many lenders will have different credit score requirements for different types of loans. Remember, if your credit history is good, then your credit score will be good and, you will have access to credit. It’s always a good idea to check your credit score so that you can see what lenders will be seeing when they run a credit check on you.
- Stable income: Lenders want the surety of a stable income. It doesn’t have to be in the form of a fixed wages but there has to be reliable sources of income and, it must be sufficient to cover your monthly expenses, with enough left to make your loan payments.
Acceptable income sources
Let’s have a look at what income sources lenders may accept. If you cannot provide proof of employment, your lender will want to see your financial records to verify other sources of income. Even if you receive unemployment benefits, you should not rely solely on these.
Other forms of income that may be accepted are:
- social security benefits
- pension funds or retirement benefit payments
- child support
- public assistance
- regular proceeds from a trust
- Income from investments
With all of these, you will also need to prove that you have different income streams and, that you have a savings account and, proof that you know how to save.
You also need to show that there are upcoming changes that may work in your favour such as:
- An employment offer or freelance work
- Pending sale of real estate or other investment properties
- Upcoming inheritance
What to keep in mind before taking out a loan while unemployed
Despite your employment status, you must be honest with yourself about being able to make the payments on your loan. Missing a payment can damage your credit and not paying at all can put a blot on your credit history for years.
If for any reason you doubt your ability to make the payments, skip the loan or borrow a smaller amount that you 'll be able to repay comfortably.
Keep in mind that lenders in the UK will be cautious when considering your employment status. In addition, depending on the nature of your income sources, they could alter their loan offer in different ways, for example:
- Lower the amount you're eligible for
- Expect you to pay the full loan amount in a shorter time frame
- Charge you higher interest rates
- Insist on a debit order so that payment is automatically made
Personal loans & where to get them
A personal loan doesn’t require you to secure it with any of your assets, be it property or a motor vehicle and it’s the type of loan you can apply for when needing cash quickly.
The best place to get a loan is with your regular bank. Having that long-standing relationship could work in your favour. You should also try your local credit union, they generally have great competitive rates and lower credit score requirements.
Normally, you have to become a member first and have a couple of pounds in an account but it’s a small price to pay for the possibility of a good loan deal.
Applying at online financial institutions
There are online lenders that are also a possibility, as they typically provide quick lending decisions and, you can always submit more than one application at the same time.
Will I be able to get a loan with bad credit?
If you have poor credit, getting a loan will be much harder. However, if you are persistent and are willing to accept the higher interest rate, then you may get approved for a bad credit loan.
If waiting a couple of months before applying for a loan is possible, then do that and it will give you a chance to take the necessary steps to improve your credit score.
You may not be able to change it overnight but, depending on your starting score, a couple of extra points could make a difference in the types of deals you can access.
What do I do if I don’t qualify for a loan?
If you cannot qualify for a traditional loan, these could be some alternatives for you:
- Apply with a cosigner: Ask a friend or family member with good credit that’s employed to help you qualify for a loan. If you don’t make payments on time, you can damage your cosigner's credit and cause them to be responsible for the loan repayments.
- Use your car title: If you own your car and you no longer have to make any payments on it, you can use it as collateral. If you miss a payment the lender can seize your car.
- Pawnshop: You can sell items of value online and that can help you raise cash quickly. Pawning or selling valuable items at the pawnshop is also an option.
- Get a cash advance: Get an advance using your credit card at the ATMs. The interest rate will be a lot higher than the one that applies to any of your regular purchases.
We all know that sudden unemployment can be a major source of stress and anxiety. A personal loan can help cover expenses so that you can focus on getting back on your feet and, go job hunting without having to worry about money. Remember to only borrow what you need and what you know you can repay.