Can I Get a Personal Loan With No Job?

Being unemployed is stressful; to minimize the strain, act fast. You may be able to get a personal loan with no job, and applying sooner can get you better terms. Here’s how to get a personal loan when you’re unemployed:

  • Apply before tapping credit cards for living expenses before applying
  • Your approved term won’t exceed your unemployment eligibility period
  • You must apply for unemployment benefits before getting a personal loan

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Apply ASAP for a personal loan with no job

This may sound counter-intuitive. Shouldn’t you run through your savings first, and apply for a personal loan if your need becomes dire?

Probably not. Consider the popular saying that banks only lend money to those who don’t need it. There is a lot of truth to that statement.

You want to get your loan approval before you actually need the money. Think about personal loans as insurance — protection for your finances and your credit rating. Losing your good credit rating could cost you thousands in added interest over the next few years, or even harm your attempts to find new work.

Workers may be wise to apply for a personal loan as soon as there employment ends for these reasons:

  1. Most lenders won’t allow you to borrow for a longer term than your unemployment benefits run, so applying earlier gets you a longer term, and that reduces your monthly payments.
  2. Applying early before you rely on credit cards and increase your balances means you may qualify for a larger loan amount.
  3. Applying while you still have some savings makes you a more attractive borrower. And open a bank account if you don’t already have one. It’s harder to apply for loans with no bank account.

You are much more likely to get approved, and be offered a loan with better terms if you apply as soon as your state approves your unemployment benefits.

personal loans for unemployed

Personal loans when unemployed: do’s and don’ts

Unemployed borrowers should avoid certain pitfalls:

  1. Do minimize credit card spending before applying, because larger balances usually drop your credit score. Bigger credit card balances also mean higher minimum payments, which affect how much you can borrow with your personal loan.
  2. Do apply for unemployment benefits as soon as possible after you get your pink slip. Apply directly with your state (not a third-party site), online if possible, and complete your application carefully. Even a typo can delay your benefits.
  3. Do stop all unnecessary spending.
  4. Do open a bank account if you don’t already have one. When you take out a personal loan with no job, lenders almost always want you to have automatic payments deducted from your bank account.
  5. Don’t choose a loan out of desperation. By applying early, you should be able to do better than a payday or title loan, which can have annual percentage rates (APRs) topping 1,000 percent.
  6. Do pay your bills on time, no matter what. You really need to protect your credit rating to avoid paying high interest rates for credit in the future.

Related: What Are Personal Loans, Unsecured Loans or Signature Loans?

How to get a loan for unemployed borrowers

When you apply for a personal loan with no job, lenders want to verify your income. If you have a letter confirming your unemployment benefits, you’ll need to provide it. If you are receiving severance pay from your employer, you must prove its amount and duration. Depending on where you live, receiving severance pay may not affect your unemployment eligibility or amount.

Provide copies of your bank statements. The more you have in savings, the more attractive you may be as a borrower. Your lender may need your bank statement information to set up automatic payments from your checking or savings account.

If you already have a new job offer but have not yet started, you can apply for a personal loan. Provide your offer letter showing your start date and pay with your application. You should be able to borrow with a longer term and lower payment once you have a job offer.

What interest rate and terms are available?

When you apply for a personal loan with no job, the interest rate you’re offered depends on the loan amount, length of the loan and your credit rating. In general, loans with shorter terms are less risky for lenders and come with lower rates. Personal loan interest rates range between 5 percent and 40 percent from reputable lenders.

Unemployment benefits in most states last 26 weeks (six months), and you probably won’t get a term exceeding that. The shorter the term, the higher your monthly payment, so applying fast is key to getting a payment that you can afford.

The table below shows how the number of months you borrow affect your payment. In turn, the size of your payment affects the amount a lender may be willing to advance you. So applying early gets you a higher maximum loan amount and/or a lower monthly payment.

Payment vs Loan Term for Personal Loans
1 Month 2 Months 3 Months 4 Months 5 Months 6 Months
Loan Amt. Int. Rate Payment Payment Payment Payment Payment Payment
$ 1,000 10% $1,008 $506 $339 $255 $205 $172
$ 2,000 10% $2,017 $1,013 $678 $510 $410 $343
$ 5,000 10% $5,042 $2,531 $1,695 $1,276 $1,025 $858

Qualifying for a personal loan when unemployed

The size of your prospective personal loan payment, combined with the payment amount for your other accounts determines how much lenders may loan you. That’s because lenders analyze the relationship between the payments on all of your accounts and the amount of income you have. This relationship is called your debt-to-income ratio, or DTI.

Suppose Applicant A gets $600 a week in unemployment benefits ($2,600 a month) and other income of $400 a month. She pays $750 a month for rent and has a $150 a month car payment. How much can she borrow with a personal loan?

It depends on the lender. Many personal loan providers, like mortgage lenders, set their maximum DTI at 43 percent for borrowers with good credit. So Applicant A would be able to have total monthly payments of .43 * $3,000, or $1,290. Since she already spends $900 a month for rent and the car payments, she may get approved for a personal loan payment of up to $390 per month. That’s a $2,000 loan if she gets a six-month term.

Related: How to Get a Personal Loan With a Low Credit Score?

How to borrow more without a job

It can be challenging to borrow when you’re on unemployment because unemployment benefits max out at about half of the income you were earning at your last job, up to a weekly maximum set by your state.

You can borrow more by including all of your income sources when you apply. For example, if you have a side gig going, and can document your earnings, include that on your application. If you loaned someone money and he or she is repaying you in monthly installments, include it if you can document that you are owed the money and that the debtor is repaying you reliably.

You may be able to borrow more if you have a co-signer. This person needs to be okay financially and have decent credit. Understand that your co-signer becomes on the hook for the unpaid balance if you don’t repay your personal loan as agreed. So please don’t make your problems someone else’s if you doubt your ability to repay your loan.

You may be able to increase your loan amount by pledging an asset as security for the loan. For example, your car (if paid off), real estate or a retirement account. However, avoid auto title loans, which have extremely short terms, high upfront fees and crippling interest rates.

Who can benefit from a personal loan while unemployed?

The biggest reason to take a personal loan when you lose your job is to guard against unexpected expenses that come up. For instance, what if your car requires an expensive repair? If you need your car to find work, you can’t let that wait until you have a new job. So a cushion in the bank for such emergencies may be helpful.

If your unemployment survival plan involves using credit cards to cover expenses while you’re out of the workforce, a personal loan might be less costly. In general, personal loan interest rates are lower than those of credit cards. And they are usually fixed. Or you can combine a personal loan with credit cards to stretch your resources further.

Related: Why Personal Loans Beat Credit Cards for Large Purchases

Unemployment survival: personal loan plus credit cards

If you lose a job, you might stretch your unemployment check by using credit cards for groceries, gas and payments for utilities. The advantage of using credit cards when unemployed is that you don’t have to qualify to borrow when you are financially weak.

But with the average rate for cash advances being almost 24 percent, you’d be looking at a payment of approximately $240 a month, taking 35 months to repay at a total interest cost of $2,400.

You could, once you find a new job, pay off that $6,000 balance with a personal loan. If the interest rate is 10 percent and you make the same payment ($240 a month), you pay off the loan in 28 months and save $1,500 in interest.

Protect against future unemployment financial problems

The best time to borrow is when you don’t need the money. So it might be smart to get approved for a personal line of credit while you still have a job. Another option is to open a new credit card account and setting it aside for emergencies only. Finally, if you don’t have an emergency savings account, start one. Most financial experts recommend that you save enough to pay your bills and housing costs for two-to-six months.

Personal loans can’t help everyone who loses a job. But if you qualify and take action right away, they might be able to help you save money and your credit rating.

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