A personal loan can be a valuable tool for consolidating high-interest debt, making a large purchase, or getting through a financial emergency. But, as with most types of financing, personal loan lenders generall♋y require that you have some sort ofꦅ income to repay the loan.
The good news is that, while it may be more difficult, being uneܫmployed doesn’t necessarily prevent you from qualifying for a personal loan. There are several othe🐈r ways you can qualify.
- Can I get approved if I’m unemployed?
- How to qualify for a personal loan
- Where to get a personal loan
- What else to consider before applying
Can I get approved for a personal loan if I’m unemployed?
The short answer is🌌 yes, you can get approved༒ for a personal loan while you’re unemployed. When you apply for a loan, most lenders consider three primary factors to determine whether you’ll be able to repay it:
- Credit score: Your credit score and your credit report both show lenders how you manage your credit. The higher your credit score, the more likely you are to be approved since you’re considered a lower-risk borrower. Higher credit scores also qualify for lower interest rates. A good credit score is 670 or higher, according to the FICO scoring model.
- Income: Many lenders have a minimum income requirement — but not all do. Even while you’re unemployed, you may still have sources of income that can help you get a loan (more on that later).
- Debt-to-income ratio (DTI): DTI represents the percentage of your gross income that goes toward debt. An ideal DTI is typically 36% or lower, as it shows a lender you have some wiggle room in your budget. However, this varies by lender. To calculate your DTI, divide your total monthly debt payments by your gross, or pretax, monthly income. For example, if your debt payments add up to $2,000 and your gross monthly income is $5,000, your DTI is 40% (2,000/5,000 = 0.4).
Ways to qualify for a personal loan while unemployed
Even if you don’t have a full-time job, you may have other income that can help you qualify꧒ for a personal loan. Here are some alternative income sources that can bolster your applic🧔ation:
- Social Security income: If you qualify for Social Security — whether it’s through retirement or disability benefits — you can use that income to qualify for a personal loan.
- Unemployment benefits: You may be eligible to receive unemployment benefits when you lose your job. If you are, you can list that income on your application.
- Alimony payments: Alimony is a type of financial support one former spouse or domestic partner pays to another after a divorce. For the purpose of applying for a personal loan, the alimony you receive counts as income.
- Rental income: If you own a rental property, you can use the money you earn to qualify for a personal loan. Even if you don’t own a rental property, you might consider renting out a room in your home to get a bit of extra income each month.
- Recurring interest: If you earn recurring interest on a deposit account, you can use that money as income for your personal loan application.
- Side hustle: If you don’t already have an alternative source of income, finding one can help you qualify for a personal loan. One option is to start a side hustle, like freelancing, until you have full-time employment again.
Even if you don’t have enough income to qualify for 🌸a personal loan, there are ways you can increase your chances of approval:
- Add a cosigner or co-borrower. A cosigner is someone who signs the loan agreement with you and agrees to make the payments if you can’t. A co-borrower, on the other hand, takes as much responsibility for the loan payments as you. If you add a cosigner or co-borrower with strong credit, you may have a better shot at getting approved. Just be cautious before asking someone to cosign or co-borrow a loan, since failure to make your payments could damage your relationship with that person.
- Apply for a secured personal loan. While many personal loans are unsecured, you may come across secured loans. When you take out a secured loan, you provide collateral that the lender can seize if you fail to make your payments. You can use your savings or an asset to secure a personal loan. Just be wary of predatory loans like car title loans, which can have extremely high interest rates and short repayment terms.
Where to find personal loans
It’s easier than ever to find personal loans. You can shop around with online lenders, which offer convenience and a straightforward application🀅 process.
Plus, online lenders typically have faster funding times than traditional banks and credit unions. Depending on the lender, you could even have the money deposited into your bank accoꦫunt the same business day.
You can also visit your local bank or credit union🅰. If you already have a relationship with a financial institution, you may have an easier time getting approved. After all, yo🐻u already have your assets there, and they can clearly see your ability to repay. Additionally, you may get more personalized service since you can speak with someone directly.
What else to consider before applying for a loan
While it’s possible to get a personal loan when you’re unemployed, it’s worth considering whether it’s a good idea. In some cases, a personal loan can help you get through a difficult financial situation. But 🔯if you’re unsure you’ll be able to repay the loan, it could make matters worse.
If you need the money and can qualify for a personal loan, it may be the best option. While some people turn to credit cards during financial emergencies, they generally have much higher int🍌erest rates. And that interest tends to compound, meaning your balance grows even faster.
Additionally, other options — like payday loans — can be predatory and end up trapping you in a cycle of debt. You could end up with an annual percentage rate (interest rate plus fees) of nearly 400%, and you usually have to repay the l♓oan in just two weeks.
At the 𒅌end of the day, it’s important to look at the big picture. Consider what you’re planning to use the money for, whether you’ll be able to make your payments on time, and how the loan will affect your finances in the long t🐬erm.