If you’ve been laid off, are in between jobs or struggling to find employment, you need to think carefully about whether or not taking out a loan is a good idea.
It's likely to be very difficult to be accepted for a loan if you have no regular income - even if your credit score is good.
But that doesn't mean it is impossible. If you need a loan - and if you're confident you can afford the monthly repayments - there could be options, although they're likely to be limited.
Borrowing can fill a financial gap or tide you over – particularly in an emergency. But it should be thought through carefully as you could risk falling into long-term debt and damaging your credit rating if you’re not able to repay.
Here we look at whether you can get a loan, the different types of borrowing available and what the terms will be like.
There's a chance you might be able to get a loan when you’re out of work, but it is likely to be a lot more difficult than if you were working. Some lenders, such as highs street banks, won’t lend to anyone who is not in a job. This is because lenders will have concerns that you won’t have enough income to repay the debt. If you do search for a loan and you're eligible your choices are likely to be more limited.
That said, it’s not impossible to borrow when you’re not working. You may be able to get a loan, particularly if you have some savings or an asset, such as your home, you’re on a pension or are in receipt of regular State benefits and you have a good credit rating. However, the loan you might get is likely to be smaller than those on offer to those in work and you’re likely to be offered much higher interest rates.
While it’s not impossible to get a loan if you have no job and a low credit score, it is likely to be much more difficult. Specialist lenders can sometimes offer loans to borrowers in this position – but you should expect to pay a much higher APR or interest rate on your borrowing so you'll need to think carefully about whether this is the right option for you.
It is a good idea to get a copy of your credit file before you apply for a loan so you can see what information lenders hold about you – and also see your credit rating. Our free credit monitor service can show you your credit score and also offers simple hints and tips on how to boost your score. Some quick ways to improve your score include:
Get on the electoral roll – lenders use this list to check your identity and address and it can instantly increase your score
Correct any mistakes on your credit file – errors on a file can damage your credit rating, but they can be easily fixed if you contact the lenders
Being on benefits should not automatically bar you from getting a loan. There are a range of different loans available, and you may find you are eligible. But look at the monthly repayments attached to a loan and be confident you can afford it before you apply. Our loans calculator is a useful tool for working out how much a loan will cost.
People on benefits may be able to qualify for certain types of loans. Options include:
Specialist loans for bad credit: some lender focus on this market and can offer deals for those on benefits and who may have a poor credit score. Expect the amount you can borrow is likely to be low and interest rates will be relatively high
Secured loans: These are less risky for lenders because you must put a valuable possession up as security, such as your house or car. While it may help you to secure a loan be aware your asset, which could be your home, will be repossessed if you can’t meet your repayments
High-interest personal loans: Some lenders will accept people on benefits for personal unsecured loans. However, as their perceived risk is greater, the interest rate will be higher than average
Guarantor loans: A guarantor loan is similar to a personal loan, but in this case you ask a close friend or family member to formally guarantee to the lender that they will repay the loan on your behalf if you default. Both you and your guarantor are legally liable for the loan
Payday loans: As an unemployed person, it’s sensible to steer clear of payday loans. These loans generally have high interest rates, short repayment terms, and impose hefty penalties if you fail to pay
Whether or not you should get a loan if you’re unemployed will depend on your own personal and financial circumstances. There are advantages and disadvantages to taking out a loan – so take time to weigh up your options, consider alternatives – including whether it might be better to wait and save up for what you need or ask friends or family for help. If you decide a loan is the best option, shop around to ensure you find the best deal for you.
Getting a loan will mean quicker access to funds compared to saving up – this could be useful in an emergency. But you should be confident you can afford the monthly repayments or you could end up in a worse financial situation
A loan will usually offer a fixed interest rate and fixed term (length of the loan), so this should help with budgeting. Unlike a bank overdraft or credit card, a loan won’t offer an open line of credit so there’s no temptation to borrow more
A loan could be used to consolidate other expensive debts in one place -making your debts easier to keep track of and potentially cheaper (if you can find a lower loan rate than your current borrowing interest rates)
Meeting loan repayments on time and in full could boost your credit rating – meaning lower cost borrowing in the future
You’ll usually face higher interest rates on a loan if you’re unemployed. This is because lenders see you as being at greater risk of default if you’re on a low income or on benefits
Taking out a loan will increase your debt burden. Think carefully about borrowing, particularly if you already have other debt commitments, such as credit cards, car loan or an overdraft
If you get into financial difficulties and can’t meet your loan repayments you’re likely to be hit with penalty fees and even higher interest rates. It could also damage your credit rating. You could end up with unmanageable debts which could be highly stressful
If you’re on a low income you can improve your chances of being accepted for a loan by boosting your credit score. Our credit monitor service is free and will show you your credit file and credit rating. It will also give you tips on how to improve your score.
There are several ways you can boost your credit score. These include:
Checking your credit score: Our credit monitor service uses information from the credit reference agency TransUnion. This service shows your credit file and score and gives tips on what you’re doing well and where you can improve your money management to boost your score
Add your name to the electoral register (via your local authority) so lenders can check your personal details
Space out applications for credit. These are noted on your credit report, so if you apply several times in quick succession, your credit score could be damaged
Always make repayments on any outstanding debts on time. Missing payments will damage your credit score, but keeping up with repayments should improve it
Taking out a credit builder credit card and paying off the balance in full every month can show lenders you can responsibly handle credit
How long it will take to get your loan will depend on your loan provider. Different lenders have different procedures for paying in the proceeds of a loan. But as a general rule it should be within a few days of your application being fully approved - if your application was straightforward. If there are any issues or futher checks are required this is likely to take longer.
What are my alternatives to a loan if I am unemployed?
There may be alternatives to taking out a loan when unemployed, such as an authorised bank overdraft or credit card. But these should only be considered if the borrowing is affordable, and you won’t get into persistent debt.
It may be preferable to speak to family and friends if you need a small cash boost to help you through a tricky period. Alternatively if you have time try to set aside small amounts each week to save towards what you need.
When you search and compare loans with us we’ll show you your chances of being accepted before you apply.
Be aware that if you have a low credit score or if you are currently unemployed and have no income, it is highly likely you may not be accepted. The good news is searching with us won't affect your credit score in any way so you can see what might be available - and the possible interest rates - before making any decisions.
We compare loans from leading providers. Just tell us a bit about yourself and what you want the loan for, then we’ll filter the results – and if you’re eligible for a loan we’ll show you the best deals to suit your needs.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. You must be 18 or over and a UK resident.