Borrowing When Unemployed

When you’re in the unemployment line money is obviously tight, and you may be considering applying for a loan to tide things over until you’re back in work. The problem is that many of the larger banks and lenders are not interested in borrowers who do not have a steady income from employment. Fortunately there are solutions out there and lenders are increasingly taking in to account secondary forms of income when making their decisions. There are also an increasing amount of niche lenders who specialise in lending to the unemployed. Being jobless or without a steady wage is therefore no longer the barrier to cash that it once was.

Of course there are many factors that go towards determining your likelihood to be approved for a loan. For example if you have a bad credit because you failed to meet the terms of past loans, you’ve been bankrupt in the past, or have any County Court Judgements (CCJs) on file; you will typically struggle to get a loan from the high-street.

However that doesn’t mean you will be automatically rejected from every lender. It just means the products available to you will be limited and the interest rates may be higher for the loans that are available to you.

Improve Your Credit Rating

One of the primary factors that help the unemployed get a loan is if they have a good credit rating. Obviously if your income is gone it’s difficult to actually get credit and improve your existing rating, however there are still things you can do. For example if you are not currently on the electoral register for your local area, providing your details automatically gives you a little bump. You can also apply for a small short-term loan (like a payday loan) that you can repay in just a few weeks. These are obtainable by those even with bad credit, so successfully repaying a few of these will help improve your score and open you up to the larger loans you might really want.

(Note: Every time you apply for a loan a note will be left on your credit report. Overdoing it can hurt you, so be sure to apply for loans you are likely to get. This is easier if you use one of the many online services that performs a ‘soft search’ and compares different loan products.)

Loans the Unemployed Can Get

The best loans on the market are always reserved for those with large incomes, who are in steady employment, and have great credit scores. However certain lenders will still lend to you if you are unemployed under certain circumstances. The catch is you will likely face higher interest rates.

Do you have a secondary source of income? An increasing number of lenders recognise that stable income does not just come from employment. Perhaps you are on some kind of benefit for long-term illness or disability, are at the age where you have a state or private pension, or are receiving insurance payments such as income protection insurance, life insurance due to a deceased spouse, or similar. If these are regular payments and are of a reasonable amount, you could be treated just as if you were employed.

Do you have assets? Your wealth and financial status is not just defined by your income from work. If you have high value assets such as property and land, vehicles, business related assets, and other valuables, this may lower your risk assessment. You will be even more likely to get approved for a loan if you agree to pledge assets as collateral (i.e. the lender can acquire or force the sale of collateral items to cover the debt).

Do you own your own home? One option for the unemployed, who own their own home or have paid a large portion of the mortgage, is to take out a loan on the equity of the property. This is basically pledging a portion of the property’s value as collateral.

Will somebody vouch for you? If your own standing is poor some lenders will allow you to bring somebody else in to the fold to vouch for you. A co-signer or guarantor is a third party that agree to take on the debt should you fail to repay. You are essentially borrowing their credit rating and income status for yourself. Of course you must be sure that you can indeed make the repayments, because you don’t want to leave a friend or relative on the hook.

Can you borrow from friends and family? There’s a bit of a stigma about borrowing from friends and family, but there’s no reason why you can do so in a formal manner. Drawing up a legally binding contract is not that difficult and you might even want to agree to pay interest.

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