“Yes, you can borrow money if you are not working. But you need a decent credit score and some other income source to show your capacity to repay the debt.”
Your employer can make you redundant at any time, or you may be unemployed by choice (in case of retirement). This is the time when you have to manage your savings or pension.
Cash is not coming in, so you will try to live as frugally as possible. But despite cutting back on your expenses, you may find it difficult to deal with unforeseen expenses. You will not bother if you can put them off. For instance, you do not need to have your laptop repaired if you need it sporadically.
However, some expenses will not wait for you to arrange money, like medical or unexpectedly higher utility bills. A lender can give you a helping hand so long as you prove your repaying capacity.
How can I get a loan while I am not working?
You can get a loan while you are not working. But there are certain conditions you should meet. A lender will loan you after an affordability check, which includes a perusal of your credit report and income sources.
“It is not necessary that you should have an excellent credit score, but lenders expect you to have a fair credit rating.”
Multiple inquiries missed payments, and defaults can take a heavy toll on your credit rating. But they will not affect your lender’s decision much if they are not the latest. Experts say, “The older the queries, the less the damaging effect on your score will be.”
Another reason why a lender does not adhere to the requirement of a good credit score is that they will analyse your overall financial condition. “Just having a good credit score is not enough to get a loan.” You must prove your repaying capacity.
In the event of unemployment, you should have a side gig like a part-time job or freelance income. Retired people can use their pension as income to qualify for unemployed loans.
What if you do not have a side gig?
In the absence of a side gig, your lender would want to review other financial sources. Although unemployment benefits can serve as a part of your income, you cannot completely rely on them as they are temporary. You should try to consider other alternatives as well. For example:
- Social security benefits
- Child support
- Disability Income
- An upcoming inheritance
- A pending sale of investments or property
It is likely that you may not have been on these benefits, or you may not be comfortable using these benefits to borrow money. If so, you should try to use income from your spouse. This is possible only when they are consignors on your loan.
A lender will check the credit rating and repaying capacity of your partner as well. Although you have got a consignor, you still need to show some source of income of your own. The good thing is that the chances of qualifying for the loan are higher even if you only have unemployment benefits.
Things to consider while borrowing with no income
If you are on benefits and need a money loan, you need to be honest with yourself about your repaying capacity. It is important to remember that you can easily rack up your debt when you are unemployed.
There is no surety about when you will land a new job, and in the meantime, you will have to live off your savings and benefits. “If you take out a loan, you will put additional pressure on your budget because of interest payments.” Ensure you have already carefully analysed your repaying capacity before taking out loans for the unemployed.
Here are some of the tips to improve your chances of qualifying for loans for the unemployed:
- Borrow little money
A lender will always be cautious while signing off on your application when you are out of work. You should try to borrow as little money as possible. Lowering the amounts you are eligible for will prove your repaying capacity stronger.
When your credit score is bad, borrowing less than you can afford to repay becomes more important. Use online loan calculators to get an idea of the estimated cost of the debt. This will help you decide how much you should borrow to ensure you will not struggle to repay the debt.
- Consider weekly instalment plans
Unemployed loans are small emergency loans that involve a higher default risk, and therefore, a lender may expect you to settle the dues in a lump sum. It may seem easy to repay, but many of you end up being in the red.
You should try to choose a lender that allows you to pay off in weekly instalments. 1OneFinance is a lender that allows lump-sum or instalment repayments. The amount of these loans is not generally too big, so it is not possible to extend payments over months. You can easily plan your budget around weekly instalments.
- Do research before applying for the loan. Ask the lender if they have a system of instalment payments.
- Take the help of a financial advisor if you are not sure about your situation.
The bottom line
You can get a loan while not working, but you still need an income source. In addition to unemployment benefits, you can use your passive income sources to qualify for an unemployed loan. In case of retirement, your pension will be regarded as your income.
Some lenders may want you to have a good credit score, while others may let you borrow money despite a bad credit rating. But it is still suggested that you do not have the latest inquiries and missed payment marks. Getting a loan while on benefits is not impossible, but you should be careful with the amount you borrow. A missed payment or default can take a toll on your credit score and throw you into debt.
Jessica William operates as a Senior Consultant and Chief Content Editor for 10 years at 1Onefinance. She assists the firm in getting a grip on the new lending laws and regulations. She does so by researching the trends, consumer requirements, and new audience preferences. Jessica is responsible for making important financial and administrative decisions.
Apart from helping consumers with the best solutions, Jessica Williams helps them ensure financial stability. She analyse the business data, finances, expenses, and revenue/ income of customers and determines necessary changes. Jessica finished her Doctorate in finance and law and implements her knowledge to the best interest of the firm and customers.