Unemployed? Here’s What You Need to Know About Qualifying for a Personal Loan

Chang Fu
May 8, 2020

First off, what’s a personal loan? A personal loan is money you borrow from a bank, credit union, or online lender that you pay back as a fixed monthly payment over a period of time. A personal loan can have a term of a few months up to many years. Most personal loans are unsecured, meaning that if you can’t pay back the personal loan, there’s no collateral your lender can repossess.

With the coronavirus outbreak, unemployment has been increasing significantly and many folks need financial assistance during this time. Getting a personal loan becomes tricky if you are unemployed or if you have no income. The lender will think: “How are you going to pay back this personal loan if you’re unemployed or without an income?” So, let’s get right to it and help you navigate how to get a personal loan if you’re unemployed.

Can you qualify without an income?

The short answer is yes but your choices are limited. You might be surprised what could be counted as income. Below is a shortlist. Just because you don’t have a job doesn’t mean you don’t have an income!

  • Retirement account (including pensions)
  • Child support and alimony
  • Unemployment benefits
  • Social security benefits
  • Retirement, Veterans Administration, disability, and family leave benefits
  • Side gig, gig economy, partner income, and business income
  • Royalty payments and tip income
  • Dividend payments or investment income like capital gains

Without income at all, you have limited choices:

Get a co-signer(s). Usually, a family member or close friend, a co-signer on your personal loan who has good credit and steady income can help you qualify for a personal loan even while you’re unemployed and without income. Be aware though that if you can’t pay back the personal loan, your cosigner’s credit will be hurt and you may damage your personal relationship. After all, your co-signer is on the hook for the loan as well! We recommend to protect your personal and family relationships, treat a co-signer on the loan seriously, and make every effort to pay back the loan on time.

Get a “personal loan” from a family member or friend. If you have someone you trust and is willing to lend you money, borrow from them. Like getting a co-signer, understand that you’re putting your personal and family relationships to the test, especially if you know you may have trouble paying off the loan on time. Take this personal loan seriously, draw up an agreement, and abide by it. Honesty and being forthright will help you navigate these difficult times.

Check community resources. Your community such as a local charity, credit union, or church may be willing to lend you money during these difficult times. It may be in the form of a personal loan or even just a grant. It’s worth it to check and you never know what might be out there for you.

Apply for a secured personal loan like a HELOC, Even though it’s rarer, there are still secured personal loans that could be a loan option. A home equity line of credit (HELOC) is a secured personal loan or line of credit that allows you to borrow money using your home as collateral. The loan amounts can be substantial and the annual percentage rate of interest (APR) can be reasonable even if you have bad credit or no income. Beware if you can’t pay back the HELOC though - you could lose your home!

Apply for other secured loans like title loans or pawnshop loans. Although these types of secured loans have high APR (usually above 100%) and are often not the best solution, a title loan or pawnshop loan will lend to you even if you have no income. That’s because they use your asset (vehicle title or a prized possession such as jewelry or electronics) for collateral and even if you can’t pay back your loan, the lender or pawn shop can be made whole or almost whole through the re-sale of your asset used as collateral.

Factors lenders use to evaluate whether to give you a loan

So what are the factors for a personal loan that banks, credit unions, and online lenders will evaluate your application on? Well, there are 5 main things:

  1. Your credit score. This is usually a FICO or Vantage credit score. For the majority of personal loans, you’ll need to be above 650. Your credit score can have a large effect on the term, the annual percentage rate of interest (APR), and the specifics of your loan. Improving your FICO score even 50 points can have a dramatic effect on the types of loans you can qualify for.
  2. Your income and employment history. Banks and other financial institutions want to know how much you make in income and where you have been employed. This gives them a perspective on whether you’ll be able to pay back your loan, especially since personal loans are usually repaid on an installment basis with monthly payments. If you’re not making income and/or have a volatile employment history, it means you’re a greater risk for the lender. Having no income and volatile employment history can mean you’re shut out from most unsecured loan lenders.
  3. Your debt-to-income ratio. If you have 0 income, it means your debt-to-income ratio doesn’t matter in the first place. But if you have income, your debt-to-income ratio is important because lenders want to understand how much loans, mortgages, and other debts you’re servicing with your current income. If someone has a lot of debt including student loans, mortgages, car loans, credit card debt, and personal loans, how is he or she to repay all the obligations every month? A debt-to-income ratio (DTI) is usually calculated as monthly debt payments divided by monthly income. If you’re higher than 43%, it’ll be difficult to get a mortgage or a personal loan.
  4. Value of collateral (if applicable) - With a secured personal loan, the value of the collateral is important. Does the value of the collateral significantly exceed the amount of the loan? If yes, you’ll have a better chance of getting the loan. For example, it’s rare that if you get a home equity line of credit (HELOC), your total borrowing amount of the HELOC plus the original mortgage will exceed even 90 or 95% of your home value. That’s because home values change and in recessionary environments, a home value can drop 20 or even 30%! Your lender will not take the risk of the collateral decreasing in value to less than the amount of the loan.
  5. Liquid assets (if applicable). Liquid assets include cash, treasuries, and other fast exchanging assets. It may also include high-quality bonds and stocks. Why does this matter? If you have plenty of liquid assets to pay back your loan even with no income or if unemployed, your lender may give you a large unsecured personal loan. However, this seems silly, doesn’t it? Why would you get a personal loan in the first place if you have plenty of money? Well, for some rich folks like Jeff Bezos, the rate they have to borrow money is lower than the rate they expect to earn from investments and other projects. Therefore, they borrow.

If you’re needing a personal loan while you’re unemployed, factors #2, #3, and #5 likely do not apply to you. Therefore, to actually get a personal loan while you’re unemployed is no easy feat. You’ll need to have a great credit score and in the case of a secured loan, have a valuable asset to use as collateral.

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Risks of borrowing when you don’t have income

Before you charge ahead and apply for personal loans when you don’t have income, please evaluate the risks of borrowing when you don’t have income. The consequences can be both heavy and long-lasting.

Bad loan terms. Because you have no income, your annual percentage rate of interest (APR) could be higher, your loan term could be shorter, fees and charges could be higher, and repayment flexibility could be worse. With no income, you’re likely to get less friendly loan terms and more expensive prices.

Longer application process. With no income, your bank or lender may require you to put up an asset for collateral. In this case, the asset such as a home or car may need to be appraised and have a value assigned. This can significantly increase the loan application time.

Inability to repay the loan. Without income and without cash assets on hand, you’ll have a difficult time repaying your loan. Unless you have an upcoming job locked in or you think you’ll get a job in a short period of time, you won’t have the money to meet your debt obligations. When you can’t repay the loan, you’ll face higher financial stress, see decreases in your credit score, and creditors may come after you with legal action.

Higher monthly expenses and payments. With no income coming in the door and ongoing monthly living expenses, you’ll face even higher monthly expenses and payments due to your new loan payment every month. Therefore, think twice about getting a loan when you don’t have income. If you can wait, it may be best to wait until you’re receiving some kind of income before proceeding with a personal loan.

Where to get a personal loan if you’re unemployed

Now that you know the risks of getting a personal loan while unemployed and the factors lenders look at, which lenders can you go to for a personal loan?

  1. Possible Finance - Possible is the best alternative to a payday loan and has personal installment loans up to $500 that build credit history. Get up to $500 in minutes without a FICO or Vantage credit score check. However, you’ll need some type of income, whether that’s unemployment benefits or something else. You’ll have multiple months to repay the loan and build credit history. Can’t pay back in time? No problem - just reschedule your payment dates directly in the Possible Finance app.
  2. Netcredit - Netcredit is an online financial services company based in Chicago that offers no income verification loans (that doesn’t mean you don’t need income necessarily, just that they don’t verify). They have various products like personal loans, lines of credit, and credit builder loans.
  3. LendUp - Lendup offers payday loans, installment loans, and personal loans but you’ll need to have an alternative source of income if you don’t have a job. That may include unemployment benefits, retirement income, or something else. It also offers credit card products through Mission Lane, an associated brand.
  4. SoFi - SoFi offers all types of loans including mortgages, student loans, personal loans, lines of credit, and home equity lines of credit. Many of these require income but some may loosen some of the income requirements if you meet other criteria to receive unemployed loans. If you have a good credit score above 700, it’s worth taking a look to see if you can qualify for any of their products when you’re unemployed.

What if you can’t pay back the personal loan

So you’re in a bind and you have too many bills and expenses with no income. Your personal loan payment is due and you can’t pay. What do you do?

Most personal loan default or nonpayment situations are similar to that of a payday loan. Our related blog post: what happens if you default on a payday loan explains the details in-depth.

In short, you can expect the following:

  1. Negative credit consequences
  2. Extra fees/interest related to the personal loan
  3. Harder to obtain loans in the future
  4. Ongoing stress and anxiety
  5. Lenders seeking repayment through prosecution or courts

Before you borrow a personal loan while unemployed, budget and plan out your finances carefully. It’s hard to predict the future but be conservative when thinking about your repayment ability - you don’t want to be in a situation where you can’t repay your personal loan and you remain unemployed.

Final Verdict

Getting a personal loan while unemployed is difficult but possible. However, know all the pros and cons and budget and research carefully so you know what to expect before you borrow money. If you’re looking for a fast flexible loan up to $500 that builds credit history, look no further than Possible Finance, the friendliest small personal loan if you’re unemployed but still getting some alternative income. Best of luck! Hopefully, the loan you need can carry over until you get a new job and start making a normal income again.

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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