If you need money right away, you might be tempted to charge your expenses on a credit card. However, you might have a better option to get funding: taking out a personal loan.
Personal loans can help you get a lump sum of money that is payable within a fixed term and has a monthly payment schedule. Most of the time, this type of loan is unsecured. Moreover, you can even get a personal loan with bad credit.
In taking out personal loans, lenders tend to look at your credit score, credit history, and income source to check if you can qualify. That said, does being unemployed prevent you from borrowing money? The answer is, it depends.
What Lenders Usually Consider In Taking Out a Personal Loan
Below are the factors lenders tend to look into before deciding on your loan application:
Credit history shows how well you manage your debt payments. On-time payments with only very few late or missed ones can help lenders assure that you know how to manage your debts well. Furthermore, most lenders want your credit history to be free from negative remarks like bankruptcies or foreclosures.
Lenders usually set a minimum credit score for different loan types. Those who have good credit scores tend to get loans with the most favorable terms and the lowest interest rates. Moreover, your credit score is influenced by the data from your credit reports.
Lenders would want to be sure you will repay the loan in the long run. Your income doesn’t need to be a work paycheck. It can either be any of the following as well:
- Social security benefits payments
- Government annuity payments
- Disability income
- Veterans affairs benefits
- Income from your partner or spouse (if they are a cosigner)
- Pension funds
- Child support or alimony
- Proceeds from a trust
- Public assistance
- Interest or dividend payments
You can also opt to show evidence that you have enough access to funds to help you pay back the loan. Here are a few scenarios a lender might accept:
- A pending contract for freelance work or any other job offer
- Pending sales of securities, real estate, or other investment properties
- An upcoming inheritance
What You Should Think About Before Applying for a Personal Loan
Before you apply for a personal loan or any loan type, it is vital to know how much you can afford regardless of your employment status. Even just one late or missed payment can hurt your credit score. Hence, it is better to be practical and realistic when taking out a personal loan.
If you are unemployed or don’t have enough income sources, lenders might tweak their loan offers to accommodate your needs. They might do this by:
- Lowering the loan amounts
- Giving you a short period to repay the loan in full
- Charging exorbitant interest rates and fees
- Requiring you to charge payments via automatic deductions
Where to Get a Personal Loan
Most of the time, personal loans don’t require you to pledge any collateral. Another advantage is that it is available from many different types of lenders. You can either get one from a bank, credit union, online lenders, and other financial institutions.
What If I Can’t Qualify for a Personal Loan?
If you can’t qualify for a personal loan, it is best to consider the alternatives. Below are some of the funding options you can try:
Credit cards can offer cash advances. However, it is vital to be careful when getting one. This is because it may charge higher interest rates if you don’t pay your balance on-time.
Line of Credit
Line of Credit is similar to a credit card wherein you can add your expenses to your balance and pay it off many times as long as you have the account. You must pay a minimum payment per month, including interest and fees for taking advantage of the credit line. This may be a smart choice if you can qualify.
You can choose to get a secured loan. Taking out a secured loan will require you to pledge collateral. This means you might risk any of your assets from repossession if you can’t repay the loan.
Home Equity Line of Credit (HELOC)
This is a line of credit that is connected to the value of your home. It is a type of secured credit. This means your home will serve as collateral. If you fail to repay the loan in time, the lender might repossess it.
In taking out a HELOC, watch out for the APR and other fees. Also, make sure if there are penalties included in the HELOC, like prepayment penalties.
Taking out a personal loan even if you are unemployed can be very challenging. However, it is possible. Moreover, it is vital to consider the costs and seek alternatives before deciding on getting a personal loan.