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 is a big risk to try taking out a loan when you’re unemployed.
However, if you are unemployed or you are between jobs and need a loan then there are a small number of lenders who might consider you for an unemployed loan.
Getting a loan with no job can be tricky. It is easier to get a small loan as an unemployed person than a larger one and your repayments will be smaller too.
Whatever the size of the unemployed loan you are looking for, lenders are likely to charge you a higher interest rate than a traditional loan. The lender may also impose stricter terms than any standard deal on the market.
That's not to say that loans for unemployed people aren't available. 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 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 find out more about credit reports in our special guide to credit reports and credit scores.
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 define 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. Find out how to understand and check your credit rating with our guide to Credit reports.
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:
A secured loan is tied to an asset that you own. If you fail to keep up with repayments, the lender may have the right to repossess that asset or force you to sell it to raise money to pay off the loan. Secured loans put your asset at risk, but because the lender has the security of knowing that there is a good chance they will be able to recoup their money if you default on payments, the interest rate on a personal secured loan tends to be lower.
A secured loan:
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 this way to those with a low or poor credit score, but there is extra risk to you as a result
An unsecured personal loan is not tied to any asset. So your home or car is not at risk if you miss your repayments, although this would affect your credit rating and damage your ability to be approved for any future type of credit such as a mobile phone contract, mortgage, or broadband deal.
An unsecured personal loan:
Does not require you to put up any possessions as security, but that is partly why you will find it difficult to get one as an unemployed person. This is because the risk is too high for the lender.
Lenders are more likely to lend only to those with a very good credit score and with a secure form of income.
There are a number of different ways to raise money if you are short of cash and unemployed. It is important to remember, however, that if you have no regular or future income and you borrow money, you are more likely to get into financial difficulty. This could affect your ability to repay any borrowing and damage your credit score.
For this reason, if you are looking at alternatives to personal or secured loans and you have no job, you should think very carefully about taking on extra credit.
There are a few lenders who might consider you for a credit card. If you have an existing credit card then do not use it to withdraw cash as the fees will be high and you will be charged interest on the balance from the moment you withdraw it. Credit card have the following features:
A flexible repayment plan (you can pay the minimum or the full amount but it is advisable that you always pay the balance off in full each month in order to avoid interest charges.
Interest rates are likely to be much higher if you are unemployed
The credit limit is likely to be much lower
There are options available for people with a bad credit history
If you already have a bank account current account you could contact your bank and ask if they would offer you an overdraft or extend your existing overdraft.
An authorised overdraft can be quite flexible, depending on what your bank is willing to offer you
It is a quick way of getting cash and safer and cheaper than a payday loan which you should always avoid
It can be quite expensive and is likely to include several conditions, so make sure you always read the terms and conditions first
If you are a homeowner, you can get a remortgage deal and release some 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 the future.
If you have lost your job and you are having money difficulties it can be very worrying and frightening. If you are losing sleep over your finances, don't despair, you can get professional and free help.
There are a number of charities that offer free debt advice. You can ask for help even if you are not in debt but you would like advice and guidance around your finances. They can help restructure your debt, cut your expenses, help you claim benefits and talk to any finance companies to freeze or reduce your monthly payments.
You should never pay for debt advice because the best and most impartial advice is available from the following charities:
Citizens Advice: you can chat to a debt adviser online for help and advice
National Debtline: the online debt advice is available here
StepChange debt charity can help you start to tackle your debt problems with an online debt advice plan
All these advisers are non-judgemental and specially trained to help people who are struggling with their finances. They may be able to suggest some simple solutions which will help you get out of debt and avoid having to take out a new loan or any further credit.
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.