How To Get a Loan Without a Job (Plus Some Alternatives Worth Considering)
Summary:
You may think that you won’t be able to qualify for a personal loan if you’re unemployed, but that’s not necessarily true. In fact, many unemployed borrowers can qualify for personal loans by providing proof of alternative sources of income. Borrowers without jobs may also be able to qualify for secured loans if they have assets to use as collateral or for unsecured loans with a co-signer if they don’t show enough income to qualify on their own.
Ironically, the immediate need for a personal loan often comes along at an inconvenient time, such as when you’re currently unemployed. Maybe you need money for medical expenses not covered by insurance, or you want to consolidate high-interest credit card debt to save some money at a time when your budget is already stretched.
Luckily, there are some personal loan lenders who will accept alternative income sources on your loan application, so you won’t need to show proof of traditional employment sources for loan qualification purposes. Of course, you will still need to provide documentation proving whatever income sources you do have, such as bank statements.
Read on to learn how to qualify for a personal loan without a job, as well as alternatives to personal loans and certain types of lending to avoid, such as payday loans.
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How to get a personal loan without a job
The main financial factors that most lenders typically require for loan approval include a good credit history, sufficient income to repay the borrowed money, and a relatively low debt-to-income ratio (DTI ratio). Unsecured loans in particular usually require proof of all three, but most importantly, lenders want to make sure you have enough money to make your monthly loan payment.
For the moment, let’s assume your credit reports are in good shape and your debt-to-income ratio is within an acceptable range for most lenders (about 40%), but you’re unemployed. The good news is that not having a job doesn’t necessarily mean you don’t have a steady income from other sources, says Young Pham, a financial advisor and investment analyst with BizReport.
“Having a job is not the most important thing when lenders are assessing if you qualify for a personal loan or not. Typically, the only thing a lender needs is to see that you have proof of regular income. You do not need a job to have a regular income. You could be a freelancer who works on gigs, someone with income-generating assets, or a business owner. As long as you can show you have regular money coming into your account, you are likely to be considered for a personal loan.”
Alternative sources of income
The following are some alternative income sources that personal loan lenders may accept as part of your gross monthly income:
- Social Security benefits
- Disability payments
- Alimony or child support
- Dividends or interest from investments or CDs
- Pension or retirement income
- Spouse’s income
- Rental income
- Trust fund
- Royalties
Some lenders may even accept unemployment benefits as a source of income; however, you shouldn’t count on this because unemployment benefits are not a permanent source of income. Most personal loan lenders want to ensure that you can make your loan payments even after the unemployment money runs out, says James Allen, CPA, CFP, CFEI, and founder of Billpin.com.
“Some lenders may consider unemployment benefits as a source of income. However, it’s important to note that these benefits are usually temporary, and lenders may also consider the stability of your income. It’s like trying to buy a house with a temporary job — the bank wants to know you’ll be able to make your mortgage payments even after your current job ends.
Pro Tip
“One important aspect to consider is the cost of the loan. This includes not just the interest rate but also any origination or late fees. It’s like buying a car — the sticker price isn’t the only cost; you also have to consider insurance, maintenance, and fuel costs. Similarly, when considering a loan, you should factor in all the costs to understand the total amount you will be required to repay.” — James Allen, CPA, CFP, CFEI, and founder of Billpin.com
Secured loans
If you can’t prove you have enough income to qualify for an unsecured loan, you may have better luck with a secured loan. A secured loan may have less stringent credit and income requirements than an unsecured loan, but you will need sufficient assets to put up as collateral. Some assets lenders will consider include the following:
- Retirement accounts
- Money market or savings account
- Certificates of deposit (CDs)
- Stocks or bonds
- Car, motorcycle, or other vehicle
- Boat
- Jewelry
- Artwork and other valuables
If you plan on using valuables such as jewelry or artwork as your collateral to qualify for a personal loan, your lender will most likely require proof of authenticity or value, as well as a current appraisal. Some lenders may even want to take possession of the asset until you’ve repaid the loan.
IMPORTANT: When you’re approved for a personal secured loan, keep in mind that you risk losing the asset if you fail to make your debt payments on time.
Alternatives to personal loans
If you can’t get a personal loan from a bank, a credit union, or an online lender, here are a few other loan options to consider:
Get a co-signer
When you don’t have the necessary requirements to qualify for a personal loan while unemployed, you might want to check to see if there is someone you know who would consider being a co-signer on the loan, suggests Pham.
“If you have a family member or friend with a stable income and good credit, they may be willing to co-sign a loan with you. A co-signer is responsible for the loan if you default, which increases your chances of being approved.”
Keep in mind that this is a big commitment to ask of someone: not only does the co-signer assume responsibility for the debt if you can’t make the monthly payments, but their credit score will also suffer if you default on the loan.
Payday alternative loans (PALs)
A payday alternative loan (PAL) is pretty much what it sounds like: an alternative to a payday loan. You can only get a PAL through a credit union (which means you must be a member), but unlike with payday loans, you can get a much better interest rate and longer loan term. Credit score requirements are also typically not as stringent as they are for personal loans or other lending options.
You can also use a PAL to pay off existing payday loans if you’ve gotten in over your head, which is fairly common due to the high interest rates, fees, and very short loan terms attached to these types of loans. Some people need payday loans in an emergency, but otherwise, you should try to avoid them if you have better alternatives.
Peer-to-peer lending
As an alternative to traditional lending options like personal loans, Allen suggests that peer-to-peer lending may be a feasible solution to your borrowing needs:
“Peer-to-peer lending platforms, for instance, can be a viable option. These platforms connect borrowers with individual investors. It’s like a potluck dinner where everyone brings a dish — instead of one entity providing the entire loan, a group of investors each contribute a portion.”
0% credit cards
With decent credit scores, you may be able to qualify for a credit card with a 0% introductory rate on purchases. Usually, these introductory periods last anywhere from six to 21 months, giving you time to repay the money before those high credit card interest rates kick in.
In a similar vein, if you’re looking to get a personal loan while unemployed for the purpose of financial relief from existing high-interest-rate debt, you can apply for a 0% balance transfer card. The terms for balance transfer credit cards are usually comparable to those for purchases, also giving you time to improve your financial situation before paying the high interest rates.
Cash advances
If you’re really in need of money, you can take a cash advance out on an existing credit card, but keep in mind this is a very expensive borrowing option, says Bill Hardekopf, CEO at BillSaver.com.
Cash advances can be extremely costly for three reasons: credit card issuers may charge a transaction fee when you take out a cash advance; the interest rate on a cash advance is typically higher than the APR on a typical credit card transaction; and there are no grace periods with a cash advance (like on your credit card purchases), so you begin accruing this high interest as soon as you make the withdrawal.
Having said that, if you need emergency cash for unexpected expenses and you think you can pay the money back relatively quickly, cash advances can work in a pinch.
Home equity loans
If you own your home and have enough equity built up in it, you may be eligible for a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.
However, it should be noted that these borrowing options have fairly strict requirements for credit profile and income, and the lending process takes much longer than getting a personal loan. Therefore, these are not great options if you need money in a hurry.
FAQ
What do I do if no one will give me a loan?
If a lender turns down your loan application, you may be able to request a smaller amount or ask the lender if there is anything else you can do to qualify for the loan. They may tell you that you need a better credit score to qualify (which you can work on), or they may say you need to reduce your debt. Lenders may also suggest that if you get a co-signer with good credit, then they will approve your application.
What are no-income loans?
One alternative to a personal loan is a no-income verification loan, such as the no income, no asset (NINA) loan that is only available to real estate investors. Mortgage lenders offer this type of loan based solely on the idea that the property will generate enough rental income to cover the monthly loan payments.
Similar no-income verification loans include the no-income, verified assets (NIVA) loan and the stated income, verified assets loan, also known as a bank statement loan because you only need to produce bank statements to prove your assets. These types of loans are considered riskier, however, so they may come with higher interest rates than other loan options.
How do I borrow money ASAP?
If you’re looking for the quickest way to borrow money, your best bet may be to check out online lenders. If you meet their credit history and income requirements, you could potentially have the money in your bank account as soon as the next business day.
Key Takeaways
- You can get a personal loan while you’re unemployed, but you’ll need to provide proof of alternative sources of income, such as rental income, your spouse’s income, child support, or alimony.
- If your income isn’t sufficient, you could be eligible for a secured personal loan if you have enough assets to put up as collateral.
- Some alternatives to personal loans include 0% credit cards, peer-to-peer lending, payday alternative loans (PALs), and co-signed loans.
- As with most lending options, credit scores are important: the higher your score, the better the interest rates and loan terms you can get.
- Try to avoid taking out a payday loan, a title loan, or any other type of predatory lending if you can take advantage of a better alternative.
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