When you lose a job, your first concern is usually, how will I be able to pay the bills. A quick scan of your finances will often send you into a panic. Where will the money come from?
One of the first things you may think of is a personal loan, to make sure you paid the bills while you’re off looking for another job. You’ll inevitably ask yourself whether anyone will lend you money without a job. It’s a good question.
Lenders Prefer People with Stable Income
In most cases, lenders tend to shy away from those who don’t have a job or other stable income. Fortunately, while such a situation is difficult, it is in no way impossible. That said, whether you should take out a loan when you are unemployed entails a lot of financial risks. Since you will be tied down to a repayment plan that includes the initial loan amount, interest and fees
Lenders will certainly be aware of the situation, which means they will be less likely to loan you money. If they do, you can expect a higher interest rate and stricter loan terms than others received their loans, who have a good job and regular income.
If you are in need of a loan despite the risks, there are things you should be aware of when you have extended credit without a regular income. Here are some things to keep in mind when you apply for a loan while you’re unemployed.
What Will Lenders Consider?
When a lender is deciding whether to give you a loan, they will always check your credit report. Since it is among the most important tools the lender has in making the lending decision, you should know in advance what is in there. Your credit report will reveal your credit score, of course. But it will also include your utility bills and loan payments, including any you missed. It will tell them how much credit you have available.
Moreover, it will list any recent credit applications, and whether they were approved or declined. Therefore, before you apply for a loan, know what’s in your report. You can have one free copy of your credit report per year from each credit reporting agency. If you need you can also pay for a copy that includes some additional information.
Correct as Many Credit Deficiencies as Possible Before Applying
This means making up as many of your missed payments as possible. But it also means registering to vote at your current address. It may seem strange, but lenders are wary of borrowers who use a fake address before committing fraud. So, being registered to vote will give your credit score a small boost.
Can I Use Benefits Payments as Income?
This can sometimes help you, but the instances of this determining a loan decision one way or another are quite rare. Since lenders prefer a “stable” income from a full-time permanent job, any other income will usually be considered less valuable.
What About Other Types of Income?
Most lenders will outline what they consider to be legitimate income. Also they will include what percentage of that income will count toward meeting their minimum income requirements. For example, if you are unemployed, but receiving rental income from a property you own, some lenders may accept 100% of this as part of your total income. While others may only count 50% or 75% of that amount as income.
And One More Question To Be Considered
Of course, there is another question that should be considered. Should you even apply for a loan when you’re unemployed? Obviously, debts can continue to pile up when you lose a job, but there is a lot of risk in using borrowed funds to pay bills and other expenses. For example, it will add to your bills by creating another payment. And if your lack of income causes you to miss payments, it could cause your debt to spiral out of control.
If you do your due diligence and the need for a loan is absolutely necessary, then compare your choices in the loan market and make sure you’re getting the best deal possible. There are likely to be a number of possible options for paying your debts, including unsecured personal loans, credit cards, or even a secured loan, like a second mortgage, if you own property.
Many of those options may be preferable to a short-term loan, but given your precarious financial state, it pays to be careful. Secured loans are the best idea because lenders are more likely to lend to those who have a low credit score. But if you can’t make payments on time, you can lose your car or home, or whatever you use for security. Make sure you borrow enough to cover your debts and also make the payments for a few months. In case it takes you that long to secure good employment.