If you are unemployed and claiming benefits, in-between jobs or simply don’t undertake any paid employment, you might struggle to qualify for a loan on standard terms.
However, you might find yourself in circumstances where you want or need to get a loan. If this is your situation, then this handy guide will tell you all you need to know about getting a loan while unemployed.
You won’t be alone. According to MoneySuperMarket data, the main reasons people search for loans for the unemployed is for home improvements (27%), closely followed by spending on a car (26%. But some (2%) even search for a loan to finance a wedding.
MoneySuperMarket data collected between January and October 2018.
Can I get a loan if I’m unemployed?
A lot of high street banks and building societies will simply decline to offer you credit if you are not in regular paid employment.
Loans are offered on the basis that the borrower will, in all probability, be able to repay the debt on schedule. The better your financial situation, the more attractive the terms of the loan will be – and the more chance you’ll be offered the lender’s lowest interest rate.
Although it is possible to get a loan while you’re unemployed, you might find yourself facing a higher rate of interest. Specialist lenders offer loans to people without regular employment, although these will typically be subject than a higher than average rate of interest.
This reflects the risk of the loan not being repaid in full or on time.
Improving your credit score while unemployed
A person who is unemployed is less likely to have a regular source of income, making getting a loan more difficult. That makes it extremely important to keep your credit score in check if you are seeking a loan while unemployed.
Here are a few things to do if you need to improve your credit score:
- Check your details are actually correct with credit reference agencies such as Experian, Equifax and TransUnion.
- Add your name to the Electoral Register (contact your local authority to do so). This will be the first place lenders look when they check your personal details.
- Space out applications for credit. Every time you apply for a loan you leave a 'footprint' on your credit file. If you apply several times in quick succession, this will make look like you are heavily reliant on credit and a riskier borrower.
- If and when you get credit, make sure you keep up repayments. Missing payments will damage your credit score and, conversely, keeping up with repayments should improve your score.
Types of loans for unemployed people
There are specialist lenders that offer loans to people who seem a greater risk because of their unemployment.
Secured loans: You could consider a secured loan, which means you would have to put a possession up as security, such as a house or car. However, this security can be repossessed if you do not keep up with the payments.
Personal loans with a high interest rate: It must be noted that the greater the risk you are perceived to be by the lender, the more interest you'll pay. People who need access to credit most face the highest interest rates from lenders.
As an unemployed person, it’s sensible to steer clear payday loans. Not having a ‘pay day’ is reason enough, but these loans are relatively expensive and the repayment periods can be very short – the penalty fees add up quickly.
How to apply for a loan if you’re unemployed
Someone looking for a loan who is employed can simply input their details into the MoneySuperMarket eligibility checker.
Answer a few questions about the amount you need, alongside a few details about your particular circumstances, and you will be able to see what loans are out there, alongside the likelihood of your being accepted.
We run a soft check, which means it will have no effect on your credit score. This is a quick and easy way to compare the rates on offer.
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.