Can You Get a Personal Loan While Unemployed?
If you've found yourself unexpectedly out of work, keeping your finances afloat can quickly become a major source of stress and anxiety. When the bills keep rolling in but the paychecks aren't, you might start looking into getting a personal loan to help bridge the gap. But can you actually get approved for a decent personal loan without a job?
The hard truth is that having active income from employment makes it much, much easier to qualify for competitive personal loan rates and terms from major lenders. That's because lenders want to see that you have a stable, reliable source of income to ensure you can make those monthly payments on time and in full. If your income situation is uncertain or you can't document sufficient earnings from other sources, you'll face higher hurdles.
Major Bank & Online Lender Requirements
At big national banks and reputable online lenders, the income requirements for unsecured personal loans are pretty rigid. They typically need to see minimum annual incomes of around $20,000 to $40,000 from verifiable sources like:
- Full or part-time employment (W-2 forms)
- Self-employment or freelancing (Schedule C tax forms)
- Investment/rental income (1099 forms, bank statements)
- Alimony/child support
- Social Security/disability benefits
- Pension/retirement distributions
In addition to income verification, they'll also want to see good credit scores (usually over 660+) and reasonable debt-to-income ratios. If you're currently unemployed with no other income stream, qualifying on your own will be extremely difficult with these lenders, if not impossible. But you do have a few alternative options to explore:
Co-signers and Co-borrowers
Getting a creditworthy co-signer or co-borrower with stable employment income is one of the best ways to get approved without a job. The co-signer assumes equal legal responsibility for repaying the loan if you can't make the payments. But it's a huge risk for them, so make sure you can trust that person implicitly.
Secured Personal Loans
With secured or collateral loans, you put up an asset like a car, home, investments, etc. as collateral to "secure" the loan in case of default. Because the collateral reduces the lender's risk, secured personal loans are much easier to get approved for if you're unemployed. Just be aware that failing to pay means you could lose that asset.
Payday Loan Alternatives
On the less desirable end of the spectrum are high-interest, no credit check options like payday loans, title loans, pawn shop loans, and some online installment lenders. These kinds of "personal" loans will not require employment verification, but they also charge outrageous triple-digit APRs that make the total borrowing costs extremely expensive.
Credit Unions and Community Banks
Local credit unions and community banks tend to have somewhat more flexible underwriting requirements compared to big banks. If you have an established banking relationship, are a member, and have very good credit, it may be worth inquiring about potential options for temporarily unemployed members. Special hardship programs are a possibility.
Building Your Case
If you've hit a temporary period of unemployment or unexpected job loss, taking steps to strengthen your overall financial profile can increase your personal loan approval chances:
- Build up cash reserves to show you have funds to cover payments
- Pay down other debts and avoid any new missed payments to keep credit strong
- Establish alternative income sources from freelancing, investments, spousal income, etc.
- Consider borrowing a smaller loan amount that fits your income situation
- Be prepared to explain your unemployment situation and re-employment plan
No Help From Retirement Accounts
It's generally not advisable to try borrowing money from retirement accounts like 401(k)s or IRAs just to get a personal loan. Early withdrawal penalties of 10%+, taxes due, and disrupting your long-term retirement planning make this an option of absolute last resort.
The Bottom Line
While you may not be completely shut out, not having active employment income will severely limit your personal loan options and make it much harder to get approved at a reasonable rate. Taking proactive steps like utilizing co-signers, collateral, or tapping local credit union relationships can improve your chances. But the reality is that major lenders want to see steady, reliable income before granting significant loans to unemployed borrowers.
The information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
Personal Loans Guide
Personal loans, a popular financial tool, offer individuals access to funds with or without collateral. These loans, provided by banks or online lenders, cater to diverse needs like debt consolidation, home improvements, or unexpected expenses and do not require any collateral. Borrowers receive a lump sum and repay in fixed monthly installments over a specified term, typically ranging from one to seven years. Interest rates, based on creditworthiness, can be fixed or variable, impacting the total repayment amount. While they provide financial flexibility, understanding terms, fees, and the impact on credit is crucial for responsible borrowing and effective financial management.
Guide to Interest Rates in Personal Loans
When you take out a personal loan, one of the most important factors to consider is the interest rate. The interest rate determines how much you'll end up paying over the lifetime of the loan in addition to the principal amount you borrowed. A higher interest rate means you'll pay more in interest charges, while a lower rate will reduce the overall cost of the loan. Understanding interest rates and how they work is crucial for making an informed decision when obtaining a personal loan.
Is It Better to Get a Loan Online or In Person?
When you need to borrow money for major expenses like a home, car, debt consolidation, or emergency costs, you essentially have two main options: apply for a loan online or go through the traditional route of an in-person application at a bank branch. Both alternatives have their own set of pros and cons to weigh carefully.