Being Unemployed and Needing a Loan, Get the Facts Here

Flexy Loans Being unemployed and needing a loan
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Finding yourself out of work or in-between jobs can put extra pressure on your finances. There’s probably going to be less money coming in, but other living expenses don’t just disappear. A loan can offer temporary relief until you’re back on your feet. 

However, borrowing money while unemployed should be carefully thought through to keep you from falling into more debt. There may still be borrowing options available to you, but you need to know what you can afford to pay back and what kind of repayment schedule is going to be the most suitable for your situation.

This article looks at what your borrowing options are if you can get a loan when you’re unemployed and what loan alternatives may be available to those on low or no income.

Can You Get a Loan if You Are Unemployed?

In short, yes. You can get a loan if you’re unemployed, but it will be more difficult than if you have a job. You will still have to prove to the bank that you can afford to pay the loan back. This is much more difficult if you don’t have a regular pay packet coming in. 

Unfortunately, this means that borrowing options, if you’re unemployed, are more limited. While you may be able to find a lender, the loan is likely going to have a very high-interest rate. Keep in mind that this could cause further problems if you can’t make your repayments. 

Some lenders will consider benefits, student loans and other non-traditional forms of income as the means to prove you can make your repayments. Other lenders may insist on a guarantor or for the loan to be secured against an asset you own, such as your home or car. These are more risky options as if you can’t pay back the loan; you could lose your assets.

Can You Get a Loan With No Income at All?

If you have no income at all, then it will be difficult to get a loan. Loans are offered under the condition that the borrower will be able to repay their debts in full and on time. On no income, a lender will see you as higher risk as its less clear how you’ll pay them back.

This limits your borrowing options to the riskiest loans, such as payday loans or doorstep loans. These can be a slippery slope into spiralling debt if you start missing repayments. You must be clear on what your repayment plan is before taking out any loan, especially ones with high interest and a short repayment timeline.

So, before you apply for a loan, you need to be realistic about just how much you can afford to borrow – and importantly, what you can afford to pay back. If you can find ways to reduce your spending, earn extra income or dip into savings, then these may be preferable to risky borrowing at a time when your income isn’t reliable.

Loans Available if You’re Unemployed

Below we look at different loan options that might be available to you if you’re unemployed.

Unsecured Personal Loans

Some specialist lenders will approve personal loans for those who are unemployed or on benefits. An unsecured loan is one where you don’t need to put forward a valuable asset such as your house or car as security. However, the trade-off here is that the interest will likely be very high, and the number of lenders available is vastly reduced due to the risk.

  • Pros: The loan isn’t secured against an asset, so your home or car isn’t at risk if you miss repayments. Your credit score will take a hit if you can’t pay, but you won’t lose your home.
  • Cons: These loans aren’t very widely available and come with much higher interest rates. If you aren’t approved for an unsecured personal loan, you will have to seek out other options.

Guarantor Loans

A guarantor loan is similar to a personal loan, but someone else, normally a family member or a close friend, agrees that they will make the repayments if you can’t. The person acting as your guarantor is your safety net in case you can’t pay. They typically need to be over 21 years old, with regular income and a reasonable credit rating themselves.

  • Pros: You may be able to borrow more money at a better rate with a guarantor. It may also help you improve your credit score if you can make your repayments on time.
  • Cons: Missing your repayments passes the cost onto someone else. Not only can this damage your relationship, but it can also put your guarantor in financial difficulty.

Secured Loans

If you don’t have a traditional regular income, some lenders will expect you to put valuable possessions such as your house or car up as security. The types of secured loan include:

  • Homeowner loans. These allow you to borrow money, up to tens of thousands of pounds in some cases, using your home as security. These are sometimes also known as home equity loans, second mortgages or second charge mortgages. Your home could be repossessed if you’re unable to pay back the loans.
  • Logbook loans. These allow you to borrow money using your car as security. You borrow a percentage of your car’s value and can keep using it until you pay the lender back – with interest, of course. This means that the lender can take and sell your vehicle to recover their losses if you default on your payments.

Pros: Secured loans may help you borrow a larger sum at a better rate and repayment schedule than an unsecured personal loan allows.

Cons: The lender is legally allowed to repossess your asset to get their money back if you miss repayments. You may lose your home or car if you can’t keep up your repayments.

Payday Loans

A payday loan is a type of short-term loan that’s designed to simply tide you over for a few days or weeks when you’re short of cash. They’re best for borrowing small amounts of money – typically up to £1000 – over a short amount of time.

Pros: Some payday loan lenders will accept benefits or student loans in their affordability checks, which can make them seem like an appealing option if you’re unemployed and needing cash fast. The money can be in your bank account in a matter of minutes.

Cons: Payday loans are incredibly risky. They’re notoriously high interest, and you’re only given a short amount of time to repay – it’ll usually be in the same month. If you miss a repayment, there tend to be large late fees, and it can lead to debt piling up very quickly.

Doorstep Loans

A doorstep loan, also known as a home collection loan or a home credit loan, is a type of personal loan that is delivered to your home. An agent from the lender will come to your door to deliver the loans in cash, and later, to collect repayments.

Pros: Cash is available quickly, and you pay it back over a longer time period than with a payday loan. For example, you may make small weekly repayments over six to nine months.

Cons: Doorstep loans are an expensive way to borrow, and you can expect interest rates of over 200%. This means you’ll have to pay back considerably more than you borrow.

Loan Alternatives: Getting Money Fast Without a Loan

There are some other options out there for borrowing money quickly if you’re unemployed.

  • Credit cards. If you only need to borrow for a short period of time, you may be able to qualify for a credit card that lets you spread out the cost of larger payments. However, it is worth keeping in mind that the interest rate will likely be very high.
  • Overdrafts. Most current accounts offer an overdraft facility which you could use to cover the cost of short-term, unexpected outgoings. Banks aren’t allowed to charge daily fees for this anymore but the interest can still be very high. Always check the small print for your account and make sure you’re aware of all the costs involved.
  • Credit unions. Credit unions can sometimes offer credit to people whose circumstances mean they’d struggle to get a loan elsewhere. These community-run saving organisations are not-for-profit, so the loans can be provided at fairly low rates, but you do need to be a member of a credit union to borrow from one. 
  • Family and friends. Borrowing from people close to you may be an option if you don’t want to borrow from a financial institution. This can help you avoid high-risk loans, but it is worth considering the impact it can have on your relationships. Always put loan agreements down in writing and agree on a repayment plan between you.

Top tip: Always make sure you read the small print and understand what your repayment options are, how much they will cost you, and if you can afford to meet the repayments before borrowing any money.

What To Do Before Taking Out a Loan

There are several things you should consider before taking out a loan if you’re having financial difficulties while unemployed.

Check You’re Getting the Support You’re Entitled To

If you’re on a low income or unemployed, then you may be entitled to certain benefits, tax credits or Universal Credit from the UK Government. You can check what you’re able to claim and find more information about how to apply using online benefits calculators

Make a Budget To See if You Can Cut Back Spending

Draw up a budget and look at where the money is coming in and going out. It makes sense to make savings wherever you can here – prioritising outgoings such as food, housing costs and utilities over entertainment, of course. There are many free budget calculators online.

Talk to Your Mortgage Lender or Landlord

If you’re struggling to make ends meet while unemployed, there may be an opportunity for you to take a temporary mortgage or rent payment holiday. Talk to your mortgage lender or landlord to see if you can negotiate any temporary leeway in repayments.

Talk to Your Utility Companies and Other Providers

Your gas, electricity and water providers may be able to help you if you’re struggling to make your bill payments. Get in touch with your utility companies and other services such as your phone, TV and internet providers and explain your situation. They may be able to support you with reduced rates or more time to pay them back to temporarily ease some pressure.

Seek Further Help and Advice

Relying on loans and other forms of credit to make ends meet isn’t sustainable. Over time, it can get you into trouble if you miss repayments. If you do find yourself struggling, there are many charities that offer free debt advice, such as StepChange or the Money Advice Service.

Getting a Better Loan When You Have Low Income

Looking more long term, the best way to boost your chances of getting a loan is to improve your credit score. There are several ways to improve your credit score:

  • Check the main credit reference agencies such as Experian, TransUnion and Equifax have your correct details on file.
  • Get in touch with your local authority (council) and add your name to the electoral register so lenders can check your details match their records.
  • Search online for a ‘loan eligibility checker’ before you apply for a loan – lots of loan applications or refusals in a short space of time can damage your credit score.
  • Pay your credit card and loan payments in full and on time – late or missing payments will damage your credit score, but keeping up with repayments should improve it.

Of course, improving your credit score isn’t an overnight solution. However, over time, a better credit rating will make borrowing easier and can get you more reasonable loan rates. This can be something you build up to once you’re able to access more regular income.

How Can Flexy Loans Help?

Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.

They have already helped thousands of people get loans already, and they can do the same for you.

Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you.  All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.

To apply and see what loan is available to you, click on the below and answer the question

Laura Broad
Laura Broad
Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.
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