Becoming unemployed can take a significant toll on your mental state and financial situation. Personal loans are one of the ways you can deal with financial issues. But can you actually get a personal loan if you’re unemployed? The answer is usually yes, you can, but the requirements for you might be a little tougher than for people who have a job.
What do banks look at before issuing a personal loan to an unemployed person?
There are a few things banks consider when deciding whether to give a personal loan to an unemployed person. Their main goal is to be as certain as possible that you will repay a loan.
Possible sources of income when applying for a personal loan
Even though you may not have income from a job in the traditional sense of the word, you still need to show the bank that you have some sort of income that you can use to repay the loan. For instance, you can often include your spouse’s income on your loan application to show that you can repay the loan. You can also show regular returns on different investments, dividends, capital gains or income from real estate that you own as proof of your financial situation. Things like social security benefits, alimony and child support can also help you get a loan.
Credit score and credit history in loan applications
No matter where you are in your life, your credit score will always be very important. When you’re unemployed, having a good credit score and a flawless credit history is crucial for being able to successfully get a loan approved by a bank.
Debt to income ratio when getting a loan
In addition to your income and credit score, another important metric banks look at when deciding whether to give you a loan, is your debt to income ratio. To calculate this, they simply divide your total monthly debt payment by your gross monthly income (income before taxes and other employer deductions). If the ratio is too high, it will be difficult for you to get a loan.
Risks of getting a personal loan when you’re unemployed
Even if you have a stable, high paying job, taking out a loan always has some risk associated with it. This risk increases significantly when you’re unemployed. So what are the risks associated with personal loans for unemployed? The biggest risk for you once you actually get a loan is missing a payment. This can badly damage your credit and if you don’t catch up with payments soon, you can be referred to collections, which can make your finances suffer even more than before. Other risks involve getting a loan with a much higher interest rate than usual or getting a short repayment term on your loan.
Personal loan alternatives
Some of the best alternatives to personal loans are peer-to-peer loans offered by FinSocial. You can easily get a loan if you’re unemployed from one of our lenders, all you have to do is apply and wait for a lender to accept your terms. Alternatively, if you need a little extra cash and you plan on repaying the loan very quickly, you can try using credit cards. If you have something valuable like a home or a different asset, you can try using those to get a secured loan from a bank.