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Loans for unemployed people

Loans for unemployed people

Being in-between jobs can put extra pressure on your finances, so you might be thinking about getting a loan. In this guide to loans for unemployed people, we’ll tell you how they work and what you can expect.

Anelda Knoesen
From the Money team
minute read
posted 21 NOVEMBER 2019

Are loans available for unemployed people on benefits?

Yes. There might not be as many options as there would be if you had a job, but there are still loans available. You might need to look at the terms for particular loans to see if they will offer loans to unemployed people on benefits.
However, if your credit rating is poor or you have County Court Judgements (CCJs) against you, lenders might see you as a riskier candidate to lend money to so it could be even harder to get credit. 

Types of loan available for unemployed people

The types of loan you’ll be offered if you’re unemployed may be limited and they’re likely to have a higher interest rate than a standard loan.

The types of unsecured loan you could be offered are:

  • Personal loan – you’re likely to have to pay a higher interest rate as a lender may see unemployment as an added risk
  • Tenant loan – to apply for this type of loan you don’t need an asset, such as a property, for security. Instead, the decision is based on income, affordability assessment and a good credit history
  • Guarantor loan – to access this type of credit you’ll need a guarantor - a person who agrees to repay your debt if you fail to meet your repayments.

This table shows examples of unsecured loans, which were offered through Compare the Market on 22 November 2018:

Type of unsecured loan Company Example amount of borrowing APR rate Monthly repayment time Monthly repayment amount Total you’ll pay back
Personal Everyday loans £1,300 93.6% APR 24 months £100.34 £2,408.16
Tenant TrustTwo £1,600 49.9% APR 24 months £98.94 £2,374.56
Guarantor UK Credit £1,500 66.9% APR 24 months £102.05 £2,449.20

The two main types of secured loan you could be offered are:

  • Homeowner loans – you borrow a lump sum of money against your house. However, a lender can repossess your home if you don’t keep up with the repayments
  • Car loans – your vehicle is used as security against your loan. You could end up losing your car if you fail to meet the repayments.

You should stay clear of payday loans as they are comparatively expensive and typically have short repayment periods. Additionally, penalty fees can add up quickly and you could soon end up in a spiral of debt.

What can I try before getting a loan?

If you’re in financial difficulties, there are several things you could consider before taking out a loan.

  • Check your outgoings and incomings to see where you can cut back. There are various free budget calculators and budget planners online. 
  • Talk to your mortgage lender. There maybe an opportunity for a mortgage payment holiday, remortgage or a government scheme.
  • Talk to your utility companies. When it comes to your gas, electricity or water bills there’s some help in place to help if you’re in arrears.
  • Get advice. Speak to one of the free debt advice services and it is probably worth getting a benefit check up to see if you are getting everything you are entitled to in benefits.

How can I compare different loans?

For unsecured loans, look at the APR – the annual percentage rate – it’s the amount of interest you’ll have to pay on top of what you’ve borrowed and it includes any fees that the lender has added.  
For homeowner loans and mortgages, you can use the ARPC to help compare loans. This interest rate includes any fees, but also takes into account any introductory rates of interest too. For example, if you take out a mortgage for 25 years but you start with a lower fixed rate for the first 5 years the calculation adjusts for this too. The idea is that it gives a much clearer picture of the total loan over the length of the loan.

Looking at the APRs on loans or APRCs on secured loans could be a good way to gauge which loan might work for you, but it’s always important to read the small print too.
Also, be aware that while the APR advertised has to be available to 51% of successful applicants, it isn’t necessarily the rate you’ll get.   
When choosing a loan, also check to see what any early repayment penalties or fees there are, so that you know what your position would be if you find work soon and are able to pay the loan off more quickly.

Do all loans for the unemployed have high interest rates?

Sadly, in the majority of examples, the interest rates will be high. But you do have a choice of which lender you choose, so just because one lender has a high interest rate, doesn’t mean that all unemployed loans will have equally high levels of interest.

How can I improve my credit rating?

To avoid any future hiccups, you can look at improving your credit rating. Doing these simple things should help.
Check your details are correct with the credit reference agencies – Experian, Callcredit and Equifax.
Put your name on the electoral register – lenders like to check you live where you say you do.
Don’t apply for lots of different loans or credit cards at the same time – if you keep getting refused a loan it’ll show up on your credit report.
Always pay your credit cards and loan payments on time and in full. Late repayment can cause you serious money problems.

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