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Loans for the unemployed

Understanding loans for the unemployed

If you’re currently out of work, it is still possible to borrow money – but you won’t be offered the best terms

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If you’ve been laid off, are in between jobs or struggling to find employment, you still need money to live.

The same is true for those on a low income or in receipt of benefits who find that outgoings are more than what’s coming in.

Borrowing can offer a reprieve, but it should be thought through as you risk falling into more long-term debt.

Here we look at whether you can get a loan, the different types available and what the terms will be like.

Can I get a loan if I’m unemployed?

You can get a loan if you’re unemployed – but it’ll be more difficult than if you have a job

A lot of high street banks and building societies will refuse to offer you credit if you are not in regular paid employment. To find a loan, you will probably have to apply to a specialist lender that charges higher interest rates.

Can I get a loan with no income?

Loans are offered on the proviso that the borrower will be able to repay the debt on schedule.

Lenders believe that the better your financial situation, the more likely you are to repay them – which increases the chances you’ll be offered a low interest rate loan.

You may still be able to get a loan if you have no regular income, but you will almost certainly face higher interest rates – as the risk that you will default on the loan is greater.

What loans can I get on benefits?

People on benefits may be able to qualify for certain types of loans. Options include:

  • Secured loans: These are less risky for lenders because you put a valuable possession up as security, such as a house or car. However, this can be repossessed if you start missing payments
  • High-interest personal loans: Some lenders will accept people on benefits as personal loan customers. 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 guarantee to the lender that they will repay the loan on your behalf if you default
  • 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

How can I get a loan with a low income?

If you are on a low income, improving your credit score is the best way to boost your chances of getting a loan.

There are several ways to do this:

  • Check that the main credit reference agencies, Experian, Equifax and TransUnion, have your correct information
  • 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 will 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

To avoid damaging your credit score further when you apply, use MoneySuperMarket’s Eligibility Checker.

You’ll answer a few straightforward questions about your financial situation and we’ll only show you loans that you are likely to be accepted for. It means less chance of being turned down and no blot on your credit rating.

Before you apply for a loan, you should also be realistic with how much you can borrow – and can afford to pay back each month.

Take the time to draw up a budget, look at where money is coming in and going out, and seeing where you can make some savings. Then ask yourself some tough questions as to how much you’ll be able to afford in monthly loan repayments bearing in mind that other unexpected costs might occur.

You can ease the monthly burden by applying for a loan over a longer period, but you will end up paying more in the long run.

Loans for the unemployed: The pros

  • Taking out a fixed-rate loan means you know when and how much you have to pay, which can help you to budget accordingly
  • You can generally choose how long you need to pay it back. A longer term means lower monthly repayments but more interest overall
  • If you’ve multiple outstanding debts, a loan might allow you to consolidate them at a lower interest rate, making repayments more manageable and giving you a better chance of clearing what you owe
  • You can spend a loan however you want, which is not always the case when using alternatives like credit cards
  • Once you return to employment, you should be able to benefit from a healthier bank balance each month. Most loans will give you the option to overpay up to a certain amount, allowing you to clear your debt faster. But check the terms and conditions

Loans for the unemployed: The cons

  • You will usually have to pay a higher interest rate than someone in employment with a steady income
  • Taking out a loan will increase your debt burden, potentially putting more strain on your finances
  • If you become unable to meet the repayments, you will face penalties and damage to your credit score

Alternatives: How can I get money fast without a loan?

Alternatives to taking out a loan include:

  • Credit cards: You may be able to qualify for a credit card that allows you to spread the cost of larger purchases. This can be a good option for short-term borrowing
  • Overdrafts: Most current accounts offer overdraft facilities you can use to cover the cost of unexpected outlays. Banks can no longer charge daily fees, but the interest rates can be high – at around 40%. During the coronavirus pandemic banks and building societies have been encouraged to allow customers to have charge-free overdraft buffers of up to £500. But always check the charges and get your bank’s permission first

Compare loans for the unemployed

Compare loans you are likely to be approved for by entering your details into MoneySuperMarket search tool.

Answer a few questions about the amount you need, along with some personal details, and we will run a soft check, which has no effect on your credit score.

It’s a quick and easy way to compare the deals available and find the loan you need.

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.

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