Can you get a loan without a job?

Whether you’re in a season of change or actively searching for the right career fit, you can still get approved for a loan. This might be welcome news if you want to make repairs to your home, go back to school, or achieve another goal. Getting a loan without a job may seem a bit complicated, but it’s ultimately important to know that unemployment isn’t a barrier to loan approval.

Read on to learn how to navigate several possibilities for getting a loan without a regular paycheck.

What lenders use to determine your eligibility

While income and employment are often part of the loan approval process, other factors also influence a lender’s decision, including:

• Income: Ideally, lenders want to see evidence of stable income to prove you can make your loan payments, but income comes in many forms. Borrowers can show a lender pay stubs and tax returns for evidence of more than just a nine-to-five job. Income also includes military benefits and allowances, alimony payments, investment income, Social Security income, child support payments, and more.
• Debt-to-income ratio: Your debt-to-income (DTI) ratio is the relationship between your debts and income. You can calculate your DTI by adding up your monthly debt payments and dividing by your total monthly income, then converting that to a percentage. Lenders generally prefer a DTI of less than 36%.
• Credit history: Lenders want to know that borrowers can handle credit responsibly before they lend, so they check your credit history to ensure you can make payments on time and that you don’t overextend your credit.
• Credit score: Your credit score is a numerical figure between 300 and 850, which helps lenders assess your creditworthiness or risk. You may secure better terms and higher rates with a higher credit score. Paying off debt is one of the best ways to raise your credit score.
• Assets and cash flow: Lenders will also look at your cash, investments, and other assets to examine your financial health. This can help your lender assess other money you have at your disposal to repay the loan.
• Collateral: Collateral is an item you use to secure a loan. For example, getting a mortgage requires you to put up your home as collateral to provide a type of insurance to a lender. Lenders often have limits on the amount they’ll finance related to the asset’s value.
• Housing: Lenders often want to know about your home stability to determine the level of risk you present. For instance, they’ll want to know whether you live in a home or rent.

How to get a loan without a job

Let’s explore your personal loan options when you’re not steadily employed.

Consider alternative income options

Lenders require proof of income, but again, you can offer a lender evidence of other revenue streams and sources besides a regular paycheck, including the following:

• Unemployment benefits
• Social Security payments
• Disability income
• Retirement or pension income
• Alimony and/or child support payments
• Interest and dividend payments
• Passive income from rental properties and other investments
• Trust funds

Have a co-signer

A co-signer is an individual who agrees to take responsibility for a loan. This person won’t necessarily use the loan money but helps you secure a loan using their credit and income.

An example might involve a parent serving as co-signer for a home loan or personal loan for their child. They provide a guarantee, but it’s worth noting that the co-signer agrees to assume responsibility for the loan balance. In other words, if the borrower defaults on the loan, the co-signer can end up repaying the loan in full.

An important note: A co-signer differs from co-borrower. Co-borrowers have equal responsibility for a loan and often have legal ownership rights. An example of a co-borrower is a husband and wife purchasing a house together.

Put up collateral

Collateral refers to assets you pledge to secure a loan, including physical assets like your car or land, or financial assets, like investment funds.

Collateral can include:

• Investments
• Real estate
• Vehicles
• Cash
• Personal property and valuables

Mortgages are examples of secured loans because you put up your home as collateral. If you default (quit paying) on the loan, your lender can seize your collateral to pay the outstanding loan balance. If you default on the loan, the lender can repossess the collateral as a form of repayment.

Unsecured loans, such as personal loans, don’t require collateral. Collateral decreases risk, meaning borrowers can potentially secure larger loans at lower interest rates with collateral.

What are the risks of getting a loan while unemployed?

You can apply for a personal loan while unemployed, but it’s wise to weigh a few risks ahead of time:

• Repayment challenges: A lack of steady income could make repaying the loan difficult. Ensure you’ll have enough money to make loan payments until you repay the loan in full.
• Default risk: Defaulting on a secured loan could lead to losing your collateral. For example, let’s say you put your car up as collateral and stop making loan payments. In that situation, your lender could repossess your car.
• Higher interest rate: Your loan interest rate may be higher if you don’t prove that you have a steady income. You can secure a lower interest rate by sharing all your income sources.
• Credit score impacts: Missed payments on a loan could negatively impact your credit score.
• More expensive fees: You may pay higher lender fees, such as origination fees (administrative or processing fees), if you apply for a loan without a job.

Alternatives to getting a personal loan without a job

If you don’t have the income sources listed above, you might be able to tap into the other potential alternatives listed below.

Apply for a home equity loan or HELOC

Home equity loans and home equity lines of credit (HELOCs) are loans that use your home’s equity to secure a loan. Most lenders require you to have between 15% and 20% in home equity (the amount of your home you have paid off and own outright). Lenders also use your home as collateral for these loans.

• Home equity loans: Home equity loans are second mortgages. Your lender loans you money as a lump sum at a fixed interest rate, and you make your monthly payments over a repayment period, typically over 10-, 15-, 20-, or 30-year terms.
• HELOCs: HELOCs are second mortgages that allow you to borrow against your home as a line of credit. HELOCs have two phases: the draw period and the repayment period. You use your money during the draw period, then repay your loan with interest on the money you borrowed during the repayment phase. 

Rocket Mortgage® offers home equity loans for borrowers but does not currently offer HELOCs.

Get a credit card cash advance

A credit card cash advance allows you to borrow against a line of credit through your credit card. You repay the money you withdraw and pay additional fees and interest. Your fees can be high with a credit card advance, including a flat fee to withdraw money and a percentage of the cash advance.

You may incur higher interest rate for a cash advance. Check your credit card’s terms and policies to learn the credit limits and fees, including the current interest rate for cash advances.

Consider peer-to-peer lending

Did you know peer-to-peer lending (also called P2P lending) is also an alternative option to personal loans?

P2P lending websites arrange for borrowers to take out loans from individuals or companies instead of financial institutions. Borrowers can benefit from lower interest rates, while lenders can earn a direct return on their investments. You’ll still need to show proof of income for these loans.

Here’s how it works: After finding a P2P platform, borrowers can apply and see the interest rate they can get for their loan. Investors and lenders will get matched, and the lending and repayment process starts.

FAQ

Still have questions about getting a loan without a job? Let’s walk through a few FAQs.

Can I get a loan if I have no income?

You’ll need some source of income to be approved for a loan, either from an employer or an alternative source. Income (of any kind) is one of the main factors that lenders look at when determining your eligibility.

Is it hard to get a loan while unemployed?

Being unemployed can make getting a loan more challenging but not impossible. Consider whether you have alternative sources of income, can put up collateral, or know someone who might be willing to be a co-signer on the loan.

What is the easiest loan to get approved for?

Some of the easiest loans to get, ones that have less rigid requirements than personal loans, include payday loans, title loans, and pawnshop loans. These types of loans have some major downsides, though, so it’s wise to do your research and know what you’re getting into.

Do you need income to get a personal loan?

You do need income to get a personal loan, but you can qualify with a wide range of sources, including unemployment benefits, Social Security, disability, retirement savings, alimony, and more. Check with your lender for more information. They can help you learn about qualifying for a loan based on your financial situation.

The bottom line: Unemployment does not disqualify an individual from a loan approval

Knowing you can secure a loan without a job is encouraging, and understanding all your options to qualify for a loan can empower you to make the right move. Lenders can also give you pointers, so don’t be afraid to reach out and ask questions before you submit loan applications.

Ready to apply for a personal loan with Rocket Loans℠? Start the application process today to see the amount and rate you can prequalify for.