When you are unemployed and short on money, getting a loan can be a complicated process.
However, most lenders are willing to help out if you have a source of income and solid credit.
Whether you are out of employment by choice or for lack of opportunities, lenders want to see the following:
1. A Strong Credit History
Your credit report must demonstrate a pattern of timely payments. Lenders want to see that you have no cases of late and missed payments, especially in the recent past.
This reassures them that you can manage your debt. A credit report without foreclosures and bankruptcies would also help.
2. Regular Income
Lenders also demand that you provide proof of regular income to know that you can afford to make your monthly payments.
Your income must be steady, reliable, and should be enough to cover your monthly expenses and monthly loan payments.
3. A Good Credit Score
Loans on employment insurance don’t depend on your credit score and focus on the general strength of your application. However, it would help if you had good credit for most other loans.
Having bad credit can make it difficult to acquire a loan, or you may have to put up with higher interest rates. Work on fixing your credit score and wait a few months before applying for a loan.
4. Qualifying for Loans With Alternate Income
Your lender may need to review your financial records if you cannot provide proof of employment. The goal is to verify that you have other sources of income.
Unemployment benefits can represent part of your income stream. However, they are temporary and unreliable. Alternate forms of income include:
- Social Security benefits
- Child support/alimony
- Pension/other retirement benefit funds
- Disability Income
- Veterans Affairs benefits
- Public assistance
If you can’t prove income streams, show proof that you can access significant amounts of money. Some lenders will accept it.
5. Factors to Consider Before Taking Out a Loan While Unemployed
Before you take out a loan, you must have an honest conversation with yourself. Do you really need the loan? Can you pay it as agreed? Defaulting or missing payments can cause long-lasting damage to your credit.
Be realistic about your income and the amount you can pay every month for the life of your loan. If you are unsure, skip the loan altogether or lower the amount. Depending on the circumstances around your unemployment, lenders may alter your loan as follows:
- Lowering the amount you qualify to borrow
- Expect that you repay fully within a short period
- Demanding payment through automatic deductions from your account
- Imposing higher interest rates and potential origination fees to cover the costs of pursuing payment should you default.
Fortunately, you no longer need to rely on traditional institutions like banks. If you are confident in your decision to get a loan, consider working with non-traditional lenders.
Many have lenient eligibility requirements and don’t require security. If you choose to go with banks, the first place to look is where you have a checking account. Pay attention to the reliability of your lender and the terms of the loan.