It may seem obvious, but it can be harder to borrow money from a lender when you’re unemployed. However, it doesn’t mean it’s completely impossible. Before you commit to trying to get a loan when unemployed, you should consider whether it’s right for your circumstances or whether you should wait until your income increases. Some lenders may point blank and refuse your loan application if you don’t have a job, so the guide below looks into how to improve your chances and the types of loans that could be easier to obtain.
Can you get a loan if you don’t have a job?
There’s no right or wrong answer here, as there are some lenders who could offer you a loan, but it can depend on your personal situation. Lenders will assess each applicant individually, and there are also other factors that go into the lender’s decision-making process. It can be possible to get a car loan, a credit card, a secured loan, or a personal loan when unemployed, but your options may be more limited. You probably won’t be able to get approved by a high-street bank or building society, as they usually reserve their best rates and loans for those who are less of a risk.
Why is it harder for unemployed people to get a loan?
No matter what your personal circumstances are, finance lenders will assess applicants based on their level of risk. The lenders take a risk when they give out money and can’t predict whether they will get the money back or not. To help reduce the number of applicants who don’t repay, they put certain roadblocks in place. Employment is important to lenders as it shows how much you can afford, how you’re going to pay back your loan, and with what money. No current income can leave lenders wondering how you expect to meet monthly repayments on time and in full. On this basis, you may be declined a car loan or not be able to borrow money. In some cases, you may not be applying with the right lenders, or your current situation simply makes it impossible to afford a loan.
Is the income class as employed?
No, receiving benefit income does not qualify as a form of employment, and you will still be unemployed. However, depending on the type of benefits you receive, you may be able to use this income as proof of affordability. Long-term benefit income in the UK such as Personal Independent Payment or Employment and Support Allowance, can be expected and paid each month which could be classified as a form of income. It can be down to the lender’s discretion and their own individual income criteria whether they accept benefit income, though. Depending on the type of loan you want, some can be easier to obtain than others. Things like car loans for people on benefit income can be offered by specialist lenders or secured loans can also be more accessible as there is a valuable possession used as security if you fail to repay.
Why are loans when you’re unemployed good?
If you can secure a loan when you don’t have a job, there are many benefits to doing so! By getting a loan and meeting all your repayments on time and in full, you can use it to improve your credit score. Getting a loan when unemployed also helps to get instant access to funds rather than having to save up for a long time.
What should you consider before trying to get a loan?
- You may face higher interest rates on bad credit or low-income loans as the risk to the lender is greater. A higher interest rate can make finance more expensive than it needs to be.
- You will have more debt to pay off when you take out another loan. This may not be the best idea if you already have high levels of debt and should instead work to pay them off first.
- Not being able to stick to the rules of your new loan agreement can lead to increased financial difficulty and impact your ability to borrow money in the future.
- Never get a payday loan company or a loan shark and always read reviews of the company before you agree to the contract. You may be desperate for credit, but it can lead to more problems.