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Getting a personal loan when you're unemployed can be difficult, as many lenders require borrowers to have a steady source of income. However, there are some personal loan companies that will give loans to unemployed workers, but it will depend on their other financial information, such as their credit score and savings. Consider looking for alternative options to personal loans as it may save you a lot of time and money.
Personal Loans for Unemployed Borrowers
First and foremost, you should determine whether taking out a personal loan is a good idea for your finances and if there are other resources you can use. Personal loans are used primarily for consolidating debt, emergency expenses and large one-time expenses. Generally, personal loan companies require their borrowers to have a steady source of income and fair to excellent credit history, as it gives confidence that the borrowers will be able to pay back the loans.
For borrowers without employment, obtaining a personal loan can be a bit trickier. If you do have some sort of income, including disability payments, Social Security income, pension funds or any other consistent stream of money, that will definitely improve your chances of qualifying. If you have no proof of income, then you may need to provide other financial information and put up collateral.
To find a personal loan, you should look into credit unions and lenders with secured loans for more reasonable interest rates. With unsecured loans, you are less likely to be approved for a loan, and, if you are approved for one, it will probably have a very high interest rate. It's important to note that some lenders will perform a hard credit check on your credit history, which can temporarily lower your credit score; this can also lower your chances of qualifying with another lender.
Should Unemployed Workers Take Out Personal Loans?
Although you may be able to get a personal loan while you're unemployed, it's best that you look for other ways to pay for your expenses, as you will have to eventually pay back the loan with interest. If you can, find other avenues to cover your costs, such as working a part-time job, and only turn to personal loans as a last resort.
If you are going to get a personal loan, consider using a co-signer, as it can help you qualify for a loan and possibly a lower interest rate, depending on your co-signer's credit score. However, only ask someone to be your co-signer if you are certain that you can pay off the loan, because you don't want to hurt to co-signer’s credit history or leave them responsible for the loan. Be sure to look for someone with good credit history and stable employment.
If you've shopped around for personal loans and were approved, before accepting the loan, look at the interest rate and calculate how much you will need to pay back on that loan. In most states, personal loan interest rates should not exceed 36%. Be wary of payday lenders, which will charge rates of more than 36%, many times reaching interest rates of 100% or 200%. Although they may not require you to have a steady income, those loans can end up costing you a lot more than they are worth.
Alternative Options for Unemployed Workers
Instead of taking out a personal loan, unemployed workers should explore other options that will decrease the amount of debt they take on. Being unemployed can really hurt your financial situation, but taking out a loan can make things worse. Below, we've listed some other options to consider rather than getting a personal loan.
Introductory 0% APR Credit Cards
Some credit cards offer an introductory 0% APR on purchases when you sign up, usually lasting from six to 18 months. This means that if you are able to make the minimum payments each month and pay off that debt within the period of having 0% APR, you will pay no interest on the amount you used. Also, you don't need a steady source of income to qualify for a credit card, but your credit history will be checked.
On the other hand, if you are unable to make minimum payments, it will negatively affect your credit score. On top of this, if you don't pay off your balance in full before the introductory period ends, you'll have to pay the regular interest rate on any remaining balance. APRs for credit cards can be over 20%, so you should try to pay off your balance as soon as you can.
Look for a Side Hustle or Part-Time Job
One way to make some money to afford your expenses is to get a part-time job or side hustle. There are several apps and websites dedicated to help people find jobs with little commitment, like Uber, Instacart, Postmates, TaskRabbit, Upwork and OfferUp. Some of these jobs will require you to leave your home, while others like Upwork and OfferUp, will allow you to work from home.
With these types of jobs, you can just pick up a job when you need it, meaning that you'll still have time to search for a full-time job. And there is less commitment on your part by using these apps. You can also look for other part-time jobs like at restaurants, working as an online assistant or teaching English online. There are endless opportunities for part-time work to consider.
Financial Assistance Programs
There are government programs that help people with financial assistance and loans to be used for living expenses, like utility bills, rent and mortgage payments. Also, many nonprofit and religious organizations offer assistance for families that are struggling financially with finding jobs, day care, medical care, home repairs, food costs and more.
Some programs to look into are the Low Income Home Energy Assistance Program (LIHEAP), which works to help families manage home energy bills, energy crises and energy-related minor home repairs, and the Temporary Assistance for Needy Families (TANF) programs, which helps families with child care assistance, job preparation and work assistance. Not everyone will qualify for these programs since each have their own eligibility requirements.
Working with a credit counselor may help you manage your budget and free up the money that you need. Credit counselors usually look at your income, expenses and debt to make recommendations based on your situation. They may recommend assistance programs and ways to trim your budget to afford your other expenses.
Free or low-cost credit counseling services are available at credit unions, religious organizations and nonprofit agencies. Be sure to check that the credit counseling service you're using is accredited with either the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).
Loans from Family or Friends
Family and friends can help in times of need, but taking loans from them doesn't always turn out well. These loans don't generally come with interest or loan terms, you won't need a steady income and your credit score won't be affected. However, you need to make sure that you pay back the loan to whoever lends it to you. Remember that relationships can be ruined when it comes to lending money.
If you do decide to borrow from family or friends, draw up a loan agreement with the amount borrowed and repayment terms. You should include any other terms you and the lender come up with and sign the document, in case any disagreements arise. If you are unsure about paying back the loan, you should reconsider borrowing the money.