Can You Get A Loan Without A Job?
Hanna Kielar7-minute read
UPDATED: July 26, 2023
Being unemployed shouldn’t single-handedly prevent you from taking out a loan if you can provide an alternative source of income and demonstrate your ability to pay back the amount. While lenders won’t typically reject a loan application just because you don’t have a job, being without work can add a step to the process or – in combination with other factors – cause you to be denied loan approval and forced to consider other options.
Let’s take an in-depth look at how you can get a loan without a job, but we’ll also examine the risks of taking on a loan without regular income.
What Lenders Use To Determine Your Eligibility
A lender considers a few factors when deciding to approve a borrower. These include:
- Income: A stable income shows a lender that a borrower can afford their monthly payments, and many loans have certain income requirements. Your income doesn’t necessarily have to come from steady employment, as we’ll discuss later on.
- Debt-to-income ratio (DTI): A borrower’s DTI measures their income against their monthly debt payments. Typically, you’ll need a DTI of 36% or lower to qualify for a loan with a good interest rate.
- Credit history: Your credit history shows a lender how you’ve handled any past and current debt, including whether you’ve had late or missed payments. A poor or nonexistent credit history can discourage lenders from approving you for a loan.
- Credit score: Your credit score is often the most important factor for a lender determining your eligibility. Borrowers with good and excellent credit will qualify for the best interest rates, while those with bad credit can face much higher rates.
A personal loan will almost always require proof of income, usually in the form of pay stubs, bank statements or tax returns.
How To Get A Loan Without A Job
If you’re unemployed, you’ll need a way to assure a lender, bank or credit union that they’ll receive repayment in full. Here are some ways you can get a loan while unemployed.
Consider Alternative Income Options
Lenders often require proof of income on a loan application, but that doesn’t necessarily have to be income from a job. Other types of income that lenders may consider include:
- Unemployment benefits
- Social Security payments
- Disability income
- Retirement or pension funds
- Alimony and child support payments
- Interest and dividend payments
- Passive income from rental properties
- Trust funds
While these can all count as income when taking out a loan, it’s important to consider whether they’re enough to cover your monthly loan payments.
Make sure to have proof of your alternative income when applying for a personal loan.
Have A Co-Signer
Getting a loan with a co-signer can reassure a lender they’ll get their money back even if the primary borrower misses payments. A co-signer can be a friend, family member or significant other who makes a legal agreement to repay the loan if you miss too many payments or default.
Having a co-signer on your loan can improve your chances of approval since their creditworthiness is averaged with yours. However, any missed payments on your end will also show up on your co-signer’s credit report. It’s similar to co-borrowing a loan, except only one of you can access the loan’s funds.
Put Up Collateral
Consider a secured loan, where you put up an item or asset as collateral to show a lender you’re serious about repaying your debt. Lenders will be a lot less concerned about your income – or lack thereof – since they can repossess your collateral if you default on the loan. A secured loan could also open you up to a potentially lower interest rate.
Items often used as collateral include vehicles, investment products and certain valuables.
Pay Off Other Debts
A major factor that most lenders consider is your DTI, or the amount you owe in monthly debt payments compared to how much money you make in a month. A borrower without a job could improve their chances of getting loan approval by paying down as much debt as possible before applying for the loan. Of course, if you need a loan and don’t have a job, it’s quite possible you won’t have the funds to liquidate any debt.
Consider different debt-payment strategies, such as making an extra payment each month if your budget allows for it.
What Are The Risks Of Getting A Loan While Unemployed?
Now that you know you can get a loan without a job, the question is: should you? Without the steady income a job provides, keeping up with your monthly loan payments could have you living on a tight budget. When you get a loan without a job, you could also:
- Hurt your credit score: If you’re at risk of being late or missing a payment, you also risk damaging your credit score. A loan default can drop your score over a hundred points and stay on your credit report for around 7 years.
- Lose your collateral: If you’re borrowing a secured loan with collateral, falling behind on your payments also risks losing your assets. Whatever you offer as collateral to secure your loan can be taken by your lender if you default on the loan.
- Pay more in interest: Even if you’re capable of keeping up with your loan payments without a job, your lender may look at your unemployment and approve you for a lower loan amount than you wanted – at a higher interest rate. If this happens, you’ll borrow less and spend more in interest over time.
- Pay more in lender fees: Some lenders charge higher origination fees for unemployed borrowers.
Alternatives To Getting A Personal Loan Without A Job
If getting a personal loan without a job is too risky for your finances, you may be eligible for other financing options. Consider the following alternatives.
Apply For A Home Equity Loan Or HELOC
A home equity loan works much like a personal loan in that it’s a lump-sum loan that you can use for practically any expense or purchase. Similarly, a home equity line of credit (HELOC) is a credit line you can withdraw from to cover expenses. Both types of loans are secured by the equity in your home, meaning your home acts as the collateral. In other words, you could lose your home if you fall behind on the loan.
To qualify for a home equity loan or HELOC, most lenders require that you have at least 15% – 20% equity in your home.
Get A Credit Card Cash Advance
If you have a credit card, you can get a cash advance from a bank or ATM. This is a short-term loan borrowed against your credit line. There’s no application or screening process since you’re already a cardholder, so being unemployed shouldn’t prevent you from taking out the money.
The downside is that cash advances can have quick repayment turnarounds as well as higher APRs and fees that may make repayment difficult if you don’t have a job.
Consider Peer-To-Peer Lending
Peer-to-peer (P2P) lending leaves banks and traditional lenders out of the decision-making and allows you to borrow from individuals or companies online. You may find a P2P lender who’ll approve you for a loan despite your unemployment, but you’ll still need to show proof of alternative income. While not traditional lending, P2P can carry the same risks when borrowing without a job.
Borrow From Friends Or Family
When unemployed, you may find it safer to borrow from someone you know. Friends or family members may offer an easier approval process or forgo one completely. Your friend or family member also may not require a contract but instead lend you the amount on good faith alone. It’s really between you and the person lending you the money.
While borrowing from close acquaintances can be easier than using a bank or private lender, you could potentially sour a good relationship if you fall behind on payments.
Dip Into Your Savings
If you have an emergency fund and you consider your situation an emergency, it may be time to pull from your savings. This being your own money, you won’t have to deal with repayment, interest or fees, but you should be mindful of how much money you take out and whether you can replenish your savings at a later date.
FAQs For Getting A Loan Without A Job
Let’s take a look at some specific questions that those looking to borrow without a job may have.
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 unemployed?
Being unemployed can make getting a loan more challenging, but it’s 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 easier loans to get – ones that have less rigid requirements than personal loans – include payday loans, title loans and pawn shop 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.
While you can get a personal loan without a job, doing so may not be best because of the risks involved. If you believe you must seek a loan, though, take a close look at your alternative sources of income, try to lower your DTI and possibly secure the loan with collateral. Just be sure the income you have can cover your monthly payments.
Curious about your personal loan rate? Start the application process today and see the amount and rate you prequalify for.
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