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Loans for the unemployed

Loans for the unemployed

Being in between jobs can put extra pressure on your finances, so you might be thinking about getting a loan as a solution. But the reality is that it can be very difficult for unemployed people to be accepted for loans from mainstream lenders, and some of the loans available to people in this situation can cause more difficulties than they solve. In this guide to loans for unemployed people, we’ll look at alternatives to loans, as well as how loans work and what you can expect. 
If you’re in financial difficulties see how you can get help without getting a loan.

Anelda Knoesen
From the Money team
minute read
Do you know someone who could benefit from this article?
Posted 16 SEPTEMBER 2020

Can I get a loan with no income?

This will be very difficult. If you don’t have a regular income, you’ll pose a greater risk to the lender. It could lead to higher interest rates, or you’ll have to use one of your assets, such as your home or your car as security, which can be risky. Ultimately, if you can’t pay back the loan, you could lose your asset. 

Can I get a loan if I’m unemployed?

If you’re unemployed, you’ll probably also be lacking a regular income. While you may be able to find a lender who’ll give you a loan, you’ll likely struggle to find one with reasonable interest rates. And if you get behind on your repayments, you could find yourself getting even further in debt. 

How can I get a loan with low income?

You’ll find it easier to get a loan than someone with no income, but the best rates of interest may not be available to you. You can compare your options and opt for the lowest possible interest rate. You can also look to improve your credit record to give you a better chance of finding a loan with more favourable rates.

What loans can I get on benefits?

In most cases, you’ll need to approach a specialist lender if you’re searching for loans while on benefits. You’ll probably only be able to find a loan with a very high rate of interest, which could cause further problems down the line. 
If you’re struggling to buy the essentials or something unexpected has come up, you may be eligible for a Budgeting Loan. These are interest-free loans from the Government’s Social Fund, which can be used to pay for things like clothing, rent and household items. Repayments are taken directly from your benefits. You’ll only be eligible to apply for this type of loan if you’ve been on certain benefits (Income Support, income-based Job Seeker’s Allowance, Employment and Support Allowance, and Pension Credit for example) for a minimum of six months.  
If you’re on Universal Credit, you may be able to apply for a Budgeting Advance, which works in a similar way. 
If you’re struggling to pay your mortgage, you may be able to get a secured loan from the Government’s Support for Mortgage Interest (SMI) programme.

Types of loan available for unemployed people

The types of loan you could be offered if you’re unemployed may be limited, and you’re likely to be charged a much higher rate of interest than if you were working.

  • Unsecured personal loans are those for which you don’t need an asset, such as a home or a car, to use as security. You may also hear about personal loans known as tenant loans, as they’re available to renters without homes to give as security.
  • Guarantor loan.  To access this type of credit, you’ll need a guarantor. This is someone who agrees to repay your debt if you fail to meet your repayments. Remember, if you can’t pay, they’ll have to. These loans can also come with high interest rates.

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

  • Homeowner loans  – with this type of loan you can borrow money using your home as security. 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.
  • Logbook loans – these are secured on your vehicle. Basically, the lender will own your car until you’ve paid the loan amount, plus interest, in full. These loans can be risky and expensive.
  • Payday loans are relatively expensive and typically have short repayment periods. Also, penalty fees can add up quickly and you could end up in a spiral of debt. Carefully consider whether this type of loan would be suitable for you, before applying. For alternatives to payday loans and advice on getting your finances back on track, see the Money Advice Service 
  • Doorstep loans (also known as home credit loans and home collection loans) charge high rates of interest, too. With these types of loans the lender’s agents call at your home to deliver the loan and collect repayments. You’re likely to pay a much higher Annual Percentage Rate (APR) for doorstep loans than for many other types of borrowing. (APR is 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.) 

Can credit unions help?

Credit unions are community savings organisations where members pool their savings to lend to each other. They are cooperatives, so they are owned and run by the members on a not-for-profit basis and can provide loans at low rates. You’ll need to be a member of the credit union to borrow from them. They may also want you to build up some savings with them before you borrow.

How can I get help without 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 on spending. There are various free budget calculators and budget planners online. 
  • If you’re a homeowner, talk to your mortgage lender.  There may be an opportunity for you to take a mortgage payment holiday, remortgage or to access a Government scheme.
  • Talk to your utility companies.  When it comes to your gas, electricity or water bills there may be some help in place if you’re in arrears.
  • Get advice.  Speak to one of the free debt advice services. For more information, visit the Money Advice Service page. It’s also probably worth checking to see if you’re getting everything you're entitled to in benefits. 
  • If you’re experiencing difficulties because of the coronavirus pandemic, you may be able to request a payment holiday on your mortgage, credit cards and any outstanding loans.

How can I compare different loans?

For unsecured loans, look at the APR – the annual percentage rate.

This can be a good way of helping you decide which loan might work for you. But it’s always important to read the small print, too. 
For homeowner loans, you can use the annual percentage rate of charge (APRC) to help compare secured loans. This interest rate includes any fees and it takes into account any introductory rates of interest, too. 
Be aware that while the APR or APRC 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 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?

Unfortunately, in most case the interest rates will be high. If you feel you have no alternative but to take out a loan, it’s important to shop around to find the best interest rate available to you.

How can I improve my credit rating?

To give yourself a chance of being accepted for a loan at a reasonable rate, you can look at improving your credit rating. This is used by lenders to decide on how much of a risk you could be, when it comes to borrowing. It influences whether you’re likely to be accepted for a loan and the interest rate you could be offered. Doing the following things could help: 
Check your details are correct with the credit reference agencies –  Experian, TransUnion and Equifax.
Put your name on the electoral register – lenders like to check to see that 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.

The disadvantages of getting a loan when unemployed

Loans for unemployed people, or people with no income, will often come with high interest rates attached. Finding a lender who will grant this type of loan in the first place could also prove difficult. In many instances, you may be forced to seek out riskier loans, such as logbook loans, which would require you to use one of your assets, for example your home, as security. If you don’t repay the money you borrowed, the lender will then have a legal right to repossess your asset.  
Always make sure you can afford the repayments on any type of loan, as missing a repayment could get you further into debt, as well as damaging your credit history.  
If you are in financial difficulties, visit the Money Advice Service for a list of the free help available.

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