Can I get a loan with little or no income?
Key takeaways
It’s not impossible to get a loan if you’re unemployed or claiming benefits but you can expect smaller loan amounts and higher interest rates.
Some lenders specialise in offering deals to those on benefits or with poor credit scores.
If you miss repayments, you may be fined (usually around £25), receive default notices and harm your credit score.
Can I borrow money without a regular income?
If you’re not currently in work, and you’re not getting paid, you may still be able to borrow money but the amount you can borrow will be limited. It will be based on your credit history, your regular income, and the type and size of loan you want to borrow.
Here are some scenarios where you could still be accepted, even if you’re not being paid:
Can I get a loan when I’m unemployed?
You might still be able to get a loan if you’re not working, but it is likely to be a lot more difficult than if you were working. Most mainstream lenders won’t lend to anyone who is not employed. This is because lenders will have concerns that you won’t have enough income to repay the debt.
But you may be able to get a loan if you have some savings or an asset, such as your home, or if you have another income such as a pension or you are in receipt of regular benefits.
Your credit history is also key when it comes to being accepted for a loan. However, the loan you might get is likely to be smaller than those on offer to people in work and set at a higher interest rate.
Can I get a loan when I’m claiming benefits?
You might be able to get a loan while claiming benefits. However, it’s unlikely you’ll be accepted by a high street bank because they might think it’ll be harder for you to pay back the loan. While on benefits you may also be eligible for a budgeting loan, depending on your circumstances. These are government loans available for people on certain benefits.
There are also some specialist lenders (those who can focus on lending to those with poor credit for example) who will consider certain types of benefits as regular income.
Can I get car finance if I am unemployed?
Being unemployed won’t prevent you from getting car finance but it will make it more difficult. What will improve your chances of getting car finance while you’re not working is having a strong credit score, as this is evidence that you’re a reliable borrower.
You should also consider paying a larger upfront deposit, as this will give the car finance provider extra security and means you will owe less money in total.
Can I apply for a short term business loan if I am unemployed?
It may be harder to be approved for a short term business loan when you’re not working but it isn’t impossible. Lenders need to trust that you are able to pay back the loan and this will seem more difficult if you don’t have a steady income.
If you’re unemployed and looking for a short-term business loan, having a good to excellent credit rating can boost your chances as it shows you’ve handled credit well in the past.
Being able to put down an asset as collateral, e.g. your house, could also improve the likelihood of being accepted for a loan but this option comes with the risk of losing your home. This is because in the event you can’t pay back what you owe, the lender can use your property to pay off the loan.
Which benefits might be considered as a regular income?
The following benefits may be considered regular income:
Universal Credit
Industrial Injuries Disablement Benefit
Incapacity Benefit
Child Tax Credit
Child Benefit
Personal Independence Payment
Employment and Support Allowance (formerly Severe Disablement Allowance or Incapacity Benefit)
Fostering Allowance
Disability Living Allowance (Personal Independence Payment)
Which benefits won't count towards my income:
Benefits which will be considered as regular income will vary across lenders. However, these are the benefits usually not seen as income:
Job Seekers' Allowance
Housing Benefit
Pension Credit
Income Support
If you receive any of the above benefits, this does not mean you won’t be approved for a loan but you might find it harder if you are also not employed.
What type of loan can I get when I’m unemployed?
If you’re unemployed you may qualify for certain types of loans – but be aware that some, such as short-term loans, which come with high interest rates, are not be a good option if your finances are already stretched and you can’t afford to make repayments.
Specialist loans for bad credit
Some lenders focus on this market and can offer deals for those on benefits and who may have a poor credit score. However, 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.
Doorstep loans
Sometimes called ‘home credit’, these are small loans where the lender will visit you at home to collect the money. These are usually short-term loans and typically you can borrow amounts under £1,000. However, like payday loans, this type of borrowing should be avoided as interest rates can be as high as 1,500% APR.
Buy Now Pay Later
Although not technically a ‘loan’, Buy Now Pay Later is a form of credit which allows you to buy goods but pay for them over a set period of time. This could be worth considering if you’re unemployed, as it gives you breathing space in between payments. However, failure to keep up with payments can result in hefty fees.
Credit union loans
You may be accepted for a loan through a credit union if you’re not working. They tend to be more affordable than choosing a payday lender.
What happens if I can’t repay the loan?
If you’re struggling to repay your loan then you should contact the lender as soon as possible who may give you alternative options for repayment. If you don’t pay back the loan, you could face consequences such as:
Missed payment fee: If you don’t make your payments on time, then you’ll be charged a late or missed payment fee, which is usually £25. As always, check the terms of your contract to find how much you’ll be charged for missing payments.
Default notice: This happens when you’ve missed several payments and is a formal letter sent by the lender when you’re behind on your payments.
Lower your credit score: Missing loan repayments and being unable to pay back your loan will be logged on your credit report and this will hurt your credit rating. Having bad credit will make it difficult to borrow money in the future.
Repossession: If you’ve put down a secured asset such as your home or car for the loan, you will lose it when you can’t pay back your loan.
What are the advantages of getting a loan if I’m not working?
There are possible upsides to taking out a loan when you’re unemployed:
Fast access to cash: Getting a loan will mean quicker access to funds and 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.
Can help with budgeting: 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.
Debt consolidation: 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)
Could boost credit score: Making loan repayments on time and in full could boost your credit rating – meaning lower cost borrowing in the future.
What are the disadvantages of getting a loan if I’m unemployed?
Here are some of the downsides to taking out a loan when you’re not working:
High interest rates: 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.
More debt: 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.
Increased financial difficulty: 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.
Can I get a loan if I am unemployed and have bad credit?
Being out of work and having bad credit doesn’t mean you will be unable to get a loan, but it makes it considerably harder. There are specialist bad credit lenders out there who lend to people with poor credit. However, being unemployed and having a poor credit score will make it more expensive to borrow and you’ll face much higher interest rates.
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.
If you’re receiving certain benefits, you might be able to apply for an budgeting loans (which is then repaid through lower benefit payments).
Or, 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.
If you have debt concerns and you’re struggling to cope, seek help early from an independent and free debt help charity, such as Citizens Advice, StepChange,or National Debtline.
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More loan guides:
How to borrow money from family and friends
Author
Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
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Senior Content Editor
Alan breaks down subjects like money and energy into plain English to help you save money.
