There are several loans available to the unemployed.
But the amount you can borrow and interest rate will depend on your circumstances.
There are several ways you can take out a loan when you are unemployed.
Let’s look at your options.
What do lenders look for?
1. Credit rating
If you have missed repayments or been insolvent, your credit rating won’t be good.
As will other issues, such as not being registered to vote.
A poor credit rating can in turn impact your ability to get a mortgage.
2. Income
Does the income or show you can afford monthly repayments?
Sometimes lenders will allow you to include benefits as income.
3. Outgoings
What other expenses do you have and will these impact your ability to keep to the loan repayment plan.
Types of loan available to the unemployed
1. Secured loans
These are loaned against an asset such as a car or home (unlike unsecured loans)
If you have a low credit rating a lender will consider your application more favourably if it is secured against an asset.
But you run the risk of losing that asset if you fail to make your repayments.
2. Personal loans
You do not need to secure the loan against an asset.
Unless with a second income and unblemished credit history, you are unlikely to get a personal loan if you are unemployed.
The best place to start is with a bank you have a long relationship with.
3. Payday loans
You should be extremely wary of taking a payday loan.
They are available to unemployed people and may seem like a good quick fix. However, they usually come with:
- Extortionate interest rates
- Steep penalties for missed payments.
4. Guarantor loans
Someone with a good credit rating and a stable income can agree pay if you fail to keep up with your repayments. This reduces the risk to the lender.
5. Credit cards
Many offer interest free periods, which can make them a useful tool to help you through a period of unemployment.
However, rates go up sharply after the initial 0% period so you should only use them if you are likely to be back in employment quickly.
6. Overdrafts
You may have an overdraft facility attached to your current account, which you can use for a small fee for a certain amount of time.
7. Remortgaging your home
You can access some of the value in your home by taking out a new mortgage, i.e., remortgaging to pay off debts.
This is only advisable if you own a large proportion of your property outright. You’ll also need to prove to mortgage lenders you have enough income to meet the repayments.
There are pros and cons to each option. But you should avoid any that come with rapidly rising rates and fees that could cause your debt to get worse.
If you think you may be unemployed for a long period of time, you should try to avoid a loan if possible.
Missed payments can quickly make your debt unmanageable. They will also impact your credit rating which will make it harder to borrow money in future.
Considerations before taking out a loan
Before taking out a loan explore other options, such as:
- Reducing your outgoings
- Selling your rental property (if you own one)
- Asking for a mortgage payment holiday
- Transferring credit card debt to a low cost alternative.
Debt charities can help you assess your options and negotiate with creditors. There are options
And in special circumstances, such as if you’re unemployed and pregnant, there is other support.
