Are loans for unemployed people available? Yes, but it's more difficult and potentially much more expensive and therefore more risky. Find out how to get one, and why they pose a risk.
Lenders are usually unwilling to give loans to people who don't have a job or stable income, but that doesn't mean it's impossible.
If you're unemployed, it can be difficult to borrow money, be it a loan, credit card or mortgage. Loans tie you down to a repayment plan that includes interest, making it important to have some kind of income - it’s a big risk to try taking out a loan when you’re unemployed.
Bad credit? Been refused credit in the past? You can still find a loan without resorting to payday lenders
Lenders will be aware of this and if they're willing to give you a loan, then it will come with a higher interest rate and stricter terms than any standard deal on the market.
However, if you do need a loan then it's important to be aware of what's potentially available on the market, the risks and how you can improve your chances of getting credit without an income.
Yes, you can get a loan when you're unemployed, but it is more difficult and potentially much more expensive – and therefore more risky.
When deciding to give you a loan, lenders will always check your credit report. It is one of the most important tools to help lenders decide whether or not to give you a loan.
That means before you apply for a loan or any other type of credit – especially if you are unemployed or do not have a stable income – check your financial history online.
Your credit report will reveal:
Your credit score
Your utility bills and loan payments, including any missed payments
How much credit you currently have at your disposal
What credit applications you have recently made (and if you were approved or declined)
Each credit reporting agency will provide some additional information, depending on what package you decide to pay for, such as what risk there is to you of becoming a victim of identity fraud.
You can get your credit report for free from most credit checking companies, usually as a two-week or 30-day trial.
Some companies will even give you advice on how to improve your credit score, but there are some very simple things to look out for:
Missed payments – rectify them as soon as possible
Not being registered on the electoral roll at your address – you can easily register to vote online and this will improve your score
Almost every lender will reject your application if you are not registered to vote at your address. This may seem harmless, but it's an underlying risk factor for lenders. Often, people who have committed credit fraud have used a fake address – so formally registering your name to your address via the electoral roll, will give your credit score a boost.
However, this will be the minimum requirement for applying for most loans. The minimum criteria section on the loan application page should be the first place you check when applying (after you've looked at your credit report).
This will include information such as what your minimum income should be. All loan providers require applicants to have an income and sometimes the minimum requirement is as low as £5,000 per year, but it won't often be lower than that.
Sometimes, but it is quite rare and there could be additional conditions attached if counting benefits as your income when applying for a loan.
Many loan providers will say what counts as income, including what percentage of that income would count towards meeting their minimum income requirements.
For example, if you are unemployed but have rental income from a property you own, the loan provider may accept 100% of this as being included in your total income, whereas some will stipulate that only 50% or 75% of this income can count.
Essentially, loan providers prefer a 'stable' income provided from a full-time permanent job. Any income you have from elsewhere will often be 'stress-tested' and considered to be worth less, no matter how reliable you think it is.
So in the rare instances where loan providers could count benefits as income, it will almost never be counted in full. For example, if you receive £10,000 in benefits every year, and the loan provider only counts 25% of that income, then your application would state that your income is only £2,500.
While debts can pile up and life can throw up some unexpected major costs, such as a wedding, a baby or an illness, it isn't advisable to get a loan if you're unemployed.
There is a risk of being unable to borrow again if you miss payments as a result of not having the income to repay your debts. If debts spiral out of control you may end up having to get more loans just to pay the interest.
However, if you are going to get a loan, then compare the loan market to get the best deal possible. Do your research, check your credit report and make a budget for what you will use the money for and how you will pay it back in full and on time.
Your borrowing options if you are unemployed include a range of loans, such as secured or personal loans, credit cards, overdrafts, or even remortgaging if you own your property.
Here's a breakdown of the drawbacks and potential benefits of each type of loan for the unemployed:
Requires you to put up your home or car as security, which can be repossessed if you fail to keep up with payments
Lenders are more likely to lend to those with a low or poor credit score, but there is extra risk to you as a result
Does not require you to put up any possessions as security, but that is partly why you will find it almost impossible to get one (the risk is too high for the lender)
Lenders are more likely to lend to those with a very good credit score
Flexible repayment plan (can pay the minimum or the full amount – advisable that you always pay the latter though)
Interest rates are likely to be much higher if you are unemployed
Credit limit is likely to be much lower too
Options available for people with a bad credit history
An authorised overdraft can be quite flexible, depending on what your bank is willing to offer you
Quick way of getting cash and safer than a payday loan
Can be quite expensive and is likely to include several conditions, so make sure you always read the rules first
If you are a homeowner, you can get a remortgage deal and release some of the equity to get a cash lump sum loan.
Remember though that your options are still very limited and you may be rejected for a loan if you are unemployed.
Be sure to avoid getting into a spiral of applying for loans and getting rejected for them as this will also show up on your credit report, and will make it harder to apply for another loan in future.
Payday loans are extremely risky and should be avoided. The interest rates are extortionate, the deadlines are harsh and the penalty fees quickly add up. Watch out for any local lenders who may not be regulated (loan sharks), as this could leave you in even bigger trouble.
Also, consider avoiding secured loans entirely if you don't have a reliable income coming in – losing your home simply isn't worth the risk.
If you're struggling with debts and desperately feel the need to get a loan to help, it might be worth taking a few minutes to get some free and independent financial advice first.