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.
Personal Loan Basics
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, a personal loan isn’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 to get rid of that hideous linoleum, or to cover living expenses during a time with low cash flow — there are a number of common uses for personal loans.
Personal loan amounts can typically vary 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 installments, often over a period of 12 to 60 months.
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 interest rate.
The interest rate for personal loans can vary for different borrowers depending on a borrower’s creditworthiness. 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.
When Should You Consider Taking Out a Personal Loan While Unemployed?
Ideally, you’d avoid taking on debt while you’re unemployed and 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, 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. Think seriously about what you’d do in the worst-case scenario if you really couldn’t make a payment. 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.
It’s also important to understand what lenders will look for when determining whether to approve you for a loan while unemployed. You’ll generally need a strong credit history and credit score to qualify. 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 Social Security benefit payments, disability income, money from investments, or even your spouse’s income, among other alternatives.
Are There Downsides to Taking Out a Personal Loan While Unemployed?
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 applying.
Here are the downsides of taking out a personal loan while unemployed:
• It will likely be harder to qualify for a loan while unemployed. While you can get a personal loan without a job, it may be more difficult to qualify. Lenders look at a variety of factors when determining whether to offer a borrower a loan, like income, debt-to-income ratio, credit history, and credit score. This data helps them determine how likely it is the borrower will pay back the loan. If a borrower is unemployed, they won’t necessarily have income to show, and their debt-to-income ratio might be much lower than it would be with a stable income. Of course, different lenders have different criteria for lending, and the ultimate decision is determined by that specific lender.
• 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. The risk isn’t just for lenders when getting a loan while unemployed. When deciding whether to apply for a personal loan during unemployment, it’s important to consider your ability to pay a higher interest rate or make monthly payments. If a borrower is struggling to make ends meet, a loan payment could be impossible to pay on top of other expenses. And defaulting on a personal loan can be even more expensive: Borrowers could face late fees for missed payments and fees if the loan is sent to collections, not to mention a hit to their credit score if they’re unable to make payments.
Are There Benefits to Taking Out a Personal Loan While Unemployed?
There may be upsides for someone who is unemployed to take out a personal loan. Benefits of personal loans for unemployed individuals can include:
• Personal loans can be more flexible than other types of loans. Borrowers can use the money from a personal loan for almost anything. This might make it an appealing choice for borrowers who may not have their normal income coming in due to unemployment.
• 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 term of a personal loan could help borrowers save over the life of a loan. This is because unlike with a credit card, you’d pay a set amount monthly over a set term, which means payments don’t roll over and continue to accrue interest.
• You could consolidate existing debt. Another potential benefit of taking out a personal loan during unemployment could be consolidating other debts. In fact, a common reason borrowers may choose a personal loan is to consolidate credit card 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 who are facing unexpected expenses, like medical bills or moving costs. If your current financial situation or a change in jobs has necessitated a move, a personal loan may be a way to pay for those unexpected costs without relying on credit cards.
To recap, here’s a rundown of the downsides and benefits of personal loans for unemployed individuals. While you potentially can get a loan while unemployed, you’ll want to make sure you’re aware of and comfortable with both the pros and the cons:
|Downsides and Benefits of Personal Loans While Unemployed|
|Qualifying can be more difficult.||Personal loans offer flexibility in how you use the funds.|
|Interest rates may be higher due to unemployment status.||It could be less costly compared to other choices.|
|Borrowers are taking on a risk amid existing financial uncertainty.||You could use a loan to consolidate debt, and potentially save money.|
|It could help you cover unexpected costs, like medical bills or moving.|
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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 requirements that borrowers must meet. Additionally, SoFi will consider an applicant’s financial history, credit score, and monthly income vs. expenses.
Improving Your Chances of Getting Approved for a Personal Loan While Unemployed
If you’re hoping to get a personal loan while unemployed, there are steps you can take to increase your odds of getting your personal loan approved.
For one, it helps to familiarize yourself with your own financial situation. Check your credit 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:
• Increase your income: While this might seem like a no-brainer if you’ve recently lost your job, there are other ways to approach adding to your 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 for credit card applications — you might find you’ve forgotten to include something. (Remember, unemployment benefits count as income.)
• 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: In this situation, another option could be to ask a friend or family member with good credit and a steady income to serve as a cosigner. Adding them to your application may make it likelier that a lender will view you favorably. 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.
Choosing a Personal Loan
Borrowers interested in a personal loan might want to consider all the pros and cons before taking one on during unemployment. If a personal loan sounds like it might be the right solution, borrowers may want to do a little bit of preparation beforehand. It’s never a bad idea for a borrower to figure out exactly much they want to borrow in advance. But remember — borrowers should only borrow the amount they need.
Taking a look at the affordability of monthly payments may also help a borrower determine how much to borrow. Additionally, borrowers may wish to pull up their financial documents and take a peek at their current credit score and overall financial health before applying for a personal loan.
If a borrower is ready to apply, it’s important to look for one that meets their specific needs. For one, they’ll need to find a lender willing to work with unemployed borrowers, if that’s their current situation.
With SoFi, the next step in applying is to get prequalified. Prequalification with SoFi doesn’t affect your credit score and lets you see what interest rate you may qualify for. While SoFi offers easy online prequalification, it’s important to look around and determine which, if any, personal loan is the best for you.
With SoFi, you may qualify for a personal loan for between $5,000 and $100,000 with no origination fees required. Plus, if you take out an unsecured personal loan and then lose your job, you may be eligible for forbearance on your payments and assistance finding a new job in the meantime.
The bottom line: While applying for a personal loan with SoFi is possible, you should properly assess the associated risks first — especially if you’re getting a loan while unemployed.
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 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, personal loans for unemployment do offer a number of benefits, including flexibility in how you use the funds, 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 taken out during unemployment can absolutely carry fees. Whether and which fees apply will depend on the lender. Common fees you could face include origination fees, late fees, and prepayment penalties.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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