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From unemployment benefits to hardship programs, there are a number of options out there when it comes to managing money during difficult times. One option that people may consider during unemployment is a personal loan. But one important question is: Can you get a loan while unemployed?
While there are personal loans for the unemployed available, it’s important to carefully assess the downsides and the benefits before moving forward. You’ll need to ensure you’ll be able to pay back the loan even if money gets tighter, and you should also be prepared for a more challenging approval process.
Key Points
• Personal loans are accessible to unemployed individuals if they meet lender requirements, such as demonstrating regular income.
• Benefits include flexibility, potential cost savings, and debt consolidation options.
• Fees may apply, including origination, late, and prepayment penalties.
• Approval may be challenging without regular income; lenders consider credit history and alternative income sources.
• Weigh pros and cons carefully, as loans can offer lower rates than credit cards but come with risks.
What is an Unemployment Loan?
At its most simple, a personal loan is when a lending institution pays out a lump sum of money to a borrower, who then pays back the amount owed plus interest over a predetermined period of time.
Unlike a mortgage or student loan, personal loans aren’t tied to a specific expense. In other words, someone might take out a personal loan to cover the cost of paying for a dream wedding, to remodel a kitchen, or to cover living expenses during a time with low cash flow, such as during unemployment. There are even emergency loans when the unexpected happens.
Types of Loans Available to Unemployed Borrowers
Personal Loans: Personal loan amounts can range from $1,000 to $100,000, depending on the lender’s guidelines, the amount a borrower requests, and the borrower’s creditworthiness. While the lender pays out the amount of the loan in one lump sum to the borrower (minus any origination fee), the borrower pays back the loan over time in monthly installments, often over a period of two to seven years.
Personal loans are generally unsecured loans, which means they do not use collateral to secure the loan. Instead, lenders may look at borrowers’ creditworthiness to determine the risk in lending to them and their personal loan interest rate.
Interest rates vary for different borrowers depending on a borrower’s creditworthiness. Average personal loan interest rates can range anywhere from around 5% to over 35%. Interest is paid back alongside the principal amount in monthly payments that are made over the life of the loan.
Payday Loans These are very short-term loans that are often for amounts of $500 or less. Payday loans are not available in every state because some states have restricted them due to their high cost to borrowers. When a borrower can’t repay what they owe in a very short time, the loan often automatically rolls over and the borrower incurs additional fees. In this way, it can be easy to get into a downward spiral of debt. SoFi does not offer payday loans.
Title Loans This type of loan requires you to use your vehicle as collateral. In the event that you fail to repay what you have borrowed, the lender can take possession of your car or truck. Like payday loans, title loans must be repaid quickly, often in less than a month. These loans can have high costs, with interest rates reaching triple digits. SoFi does not offer title loans. SoFi’s personal loans are unsecured.
Recommended: Personal Loan Guide for Beginners
When Should You Consider Taking Out a Personal Loan While Unemployed?
Ideally, you’d avoid taking on an unemployment loan when you don’t have regular income coming in from a job. You might first explore any other options available to you to free up funds, whether that’s taking on a side hustle, getting a roommate, or reassessing your budget. However, there are some circumstances when taking out a personal loan while unemployed may be doable, and it can be a better option than resorting to a high-interest payday loan or expensive credit card debt.
If you’re considering a personal loan while unemployed and wondering how to get a loan without a job, you should first assess whether you’ll realistically be able to make on-time payments on your loan each month. Not doing so can lead to late fees and impacts to your credit score. You may even consider crunching the numbers using a personal loan calculator to determine if a personal loan would net you any savings over another borrowing option.
What Lenders Look for When You’re Unemployed
It’s also important to understand what criteria lenders consider when determining whether to approve you for a loan while unemployed. You’ll generally need a strong credit history and credit score for a personal loan. Additionally, lenders will want to see some income in order to prove you’ll be able to make monthly payments. Without a regular paycheck coming in during unemployment, this could be an unemployment benefit, Social Security payment, disability income, money from investments, or even your spouse’s income, among other alternatives. If you don’t have a credit history or have bad credit, you may be in the market for a high-risk personal loan.
Pros and Cons of Loans for Jobless Borrowers
Taking out a personal loan may seem appealing to someone who is temporarily out of work because it might be relatively quick to secure and can come with lower interest rates than credit cards. But as with all financial decisions, it’s important to understand the pros and cons of taking out a personal loan while unemployed before you apply for a personal loan.
Pros of Personal Loans for Unemployed Individuals
• Personal loans can be more flexible than other types of loans. The money from a personal loan can be used for almost anything.
• It may be less costly than other borrowing options. A personal loan may come with lower rates than a credit card, which can be a major benefit when it comes to saving money. Additionally, the fixed rate of a personal loan can help borrowers budget for monthly payments.
• You could consolidate existing debt. Sometimes called debt consolidation loans, this type of personal loan can help borrowers save money if they can secure a lower interest rate than they’re currently paying on their credit cards. Additionally, debt consolidation loans can streamline multiple payments into one monthly payment. Keep in mind, however, that continuing to use credit cards after obtaining a credit card consolidation loan can lead to debt continuing to pile up.
• They can help you deal with unexpected expenses. Personal loans may be an option for borrowers facing unexpected expenses, like medical bills or moving costs.
Cons of Personal Loans for Unemployed Individuals
• It will likely be harder to qualify for a loan while unemployed. Lenders look at a variety of factors when evaluating a loan for jobless people, including income, debt-to-income ratio, credit history, and credit score. If a borrower is unemployed, they won’t necessarily have income to show, and their debt-to-income ratio might be much higher than it would be with a stable income. Personal loans for bad credit may be more challenging even if you aren’t unemployed.
• Lenders may charge higher interest rates. Some lenders may offer higher interest rates to unemployed personal loan borrowers. This is because of the additional perceived risks of lending to someone who is unemployed.
• Borrowers are taking a risk. Consider your ability to pay a higher interest rate or make monthly payments while you’re unemployed. Borrowers could face late fees for missed payments and more fees if the loan is sent to collections, not to mention a hit to their credit score if they’re unable to make payments.
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Does SoFi Offer Personal Loans for Unemployed People?
SoFi does offer personal loans for unemployed individuals, assuming applicants meet other conditions. If you are not currently employed, it’s necessary to meet one of the two following eligibility criteria:
• Have sufficient income from other sources
• Have an offer of employment to start within the next 90 days
Beyond these conditions regarding employment and income, SoFi also has a number of other typical personal loan requirements that borrowers must meet. Additionally, SoFi will consider an applicant’s financial history, credit score, and monthly income vs. expenses.
How to Get a Loan Without a Job: Tips to Improve Your Chances
If you’re hoping to get a personal loan as an unemployed person, there are steps you can take to increase your odds of getting your loan approved.
For one, it helps to familiarize yourself with your own financial situation. Check your credit score to see if it falls within a lender’s requirements, assess your current sources of income now that you’re unemployed, and take a look at how your current monthly debt payments compare to your monthly income. These are all factors that lenders will take into account when determining whether to approve the loan application, so the better they look, the better your chances that the lender’s answer will be a yes.
If you’re not confident you can get approved for a personal loan with your financial situation as is, you might consider taking some of the following actions:
• Minimize your debts: If your debt-to-income ratio is way out of whack, that could lower your odds of approval. Consider ways you could cut costs, whether that’s downsizing your home, moving in with a friend or family member in the meantime, or selling off a car that’s saddling you with monthly payments.
• Consider adding a cosigner: Another option could be to ask a friend or family member with good credit and a steady income to consider cosigning a personal loan for you. Adding them to your application may make it likelier that a lender will view you favorably. (Cosigning can also help build your credit.) Just remember that if you fail to make timely payments on your loan, you could damage your cosigner’s credit and stick them with the payments — not to mention the harm it could do to your relationship.
• Consider adding a co-borrower: There are some similarities between a cosigner and a co-borrower. For instance, when you use a co-borrower, you leverage that person’s income, credit score, and financial history to help you qualify for a loan. But unlike a cosigner, a co-borrower is equally responsible for paying back the loan and will share ownership of any property the loan is used to purchase.
• Increase your income: While this might seem like an impossibility if you’ve recently lost your job, there are other ways to approach adding sources of income while you’re on the job search. You could pick up a side hustle or get a roommate. Also take the time to review what counts as income — you might find you’ve forgotten to include something. (Remember, unemployment benefits count as income.)
Recommended: Guarantor vs. Cosigner: What Are the Differences?
The Takeaway
If you’re interested in personal loans for unemployment, consider the pros and cons before taking one on. If a personal loan sounds like it might be the right solution, do a little bit of preparation beforehand. It’s never a bad idea to figure out exactly how much you want to borrow in advance. But remember — you should only borrow the amount you need.
Taking a look at the affordability of monthly payments may also help you determine how much to borrow. Additionally, you may wish to pull up your financial documents and peek at your current credit score and overall financial health before applying for a personal loan.
If you’re ready to apply for a personal loan, it’s important to look for one that meets your specific needs and to find a lender willing to work with unemployed borrowers, if that’s your current situation.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Can you use a personal loan as an unemployment loan?
Yes, it is possible to use a personal loan as an unemployment loan. However, in order to qualify for a personal loan while you’re unemployed, you’ll still need to meet a lender’s eligibility requirements. This generally includes demonstrating some type of regular income.
What are the benefits of using an unemployment loan?
While risky, a loan for an unemployed person does offer a number of benefits, including flexibility in how the funds are used, potentially lower costs than other borrowing options, and the choice to consolidate existing debt. A personal loan could also come in handy if unexpected expenses arrive, such as a surprise medical bill or an unanticipated move.
Are there any fees associated with unemployment loans?
Personal loans for unemployed people can absolutely carry fees. Which fees apply will depend on the lender. Common fees you could face include origination fees, late fees, and prepayment penalties.
What counts as income when applying for a loan while unemployed?
Lenders who provide unemployment loans may consider any of the following income when qualifying you for a loan when you’re not employed: unemployment benefits, Social Security income, disability payments, investment income, a spouse’s income, or income from a rental business (such as an apartment share).
What credit score do you need to get a loan for jobless people?
Different lenders will have different credit score requirements when qualifying someone who is not employed for a loan. However you will generally need a credit score of at least 610 to qualify for a personal loan, and a score of 670 or better to qualify for the best available interest rates.
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