Loans for unemployed people

Getting a loan when you’re out of work can be a lot harder than if you have a steady income. Adding a debt could even cause more difficulties than it solves, so it should be something you consider very carefully. Here’s a look at how loans work if you’re unemployed and what alternatives are out there.

Getting a loan when you’re out of work can be a lot harder than if you have a steady income. Adding a debt could even cause more difficulties than it solves, so it should be something you consider very carefully. Here’s a look at how loans work if you’re unemployed and what alternatives are out there.

Rob Silvey
Finances expert
8
minute read
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Last Updated 29 APRIL 2022

Loans for unemployed people

Being unemployed can put a lot of extra pressure on your finances – even more so during the current cost of living crisis. While a loan might seem like a solution, the reality is that it could be much harder to borrow money from a mainstream lender if you’re out of work. If you struggle to make repayments on time, you could be stung with sky-high interest charges – this will add to your original debt, and you could find things spiralling out of control.  

Here’s our guide to loans for unemployed people, how they work and what alternatives are available if you’re struggling with your finances.  

If you’re having financial problems, see how you can get help without getting a loan.

Can I get a loan with no income?

This will be very difficult. If you don’t have a regular income, lenders will see you as a greater risk. While it’s not impossible to get a loan with no income, it could mean that you’ll be charged a higher interest rate or may have to put up one of your assets, such as your home or your car, as collateral, which can be risky. If you can’t pay off what you owe, you could end up losing the only security you have.

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 probably struggle to find one with reasonable interest rates. And if you fall behind on your repayments, you could find yourself getting even further in debt.

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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. If you want a decent rate, you’d be better off trying to improve your credit score first. You can then compare options to see if you can find a loan with a lower interest rate.

Can I get a loan with a bad credit score?

We can’t say it’s impossible, but no job and a bad credit score certainly won’t do you any favours when it comes to applying for a loan. At a pinch, you might be able to find a specialist lender who’s willing to offer a bad credit loan to someone in your situation – but you should expect to pay a much higher interest rate.  

Think very carefully about applying if your credit rating isn’t up to scratch because making an application might leave a mark on your file that could impact your score further. Before you do anything, obtain a copy of your credit file to see what information is on there and what your actual credit rating is. We’ve partnered with one of the main credit agencies, Experian, to provide access to your credit score for free.  

Find out how to get your free credit check.  

The good news is, there are quick and simple ways to help build your credit score. For example: 

  • Get on the electoral roll – lenders use this to check your identity. Registering to vote could instantly increase your score.  
  • Check your credit report for any mistakes – even a difference in how you spell your name could damage your score, but errors can be fixed by contacting the credit reference agency.

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 – for this type of loan, you don’t need an asset like your home or car as security. However, interest rates may be higher than for a secured loan. You might also hear about personal loans known as tenant loans, as they’re available to renters without homes to give as security. As you’re not putting up any kind of collateral, you’ll typically need to be employed and have a good credit history to get this type of loan. 
  • Guarantor loans –  to access this type of loan, 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 instead. 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. However, the lender can repossess your home if you don’t keep up the repayments. 
  • Car loans – the vehicle you want to buy 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 against a vehicle you already own. 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 – can be very expensive, and typically have short repayment periods. Also, penalty fees could 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 MoneyHelper website.   
  • Doorstep loans (also known as home credit loans and home collection loans) – these 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.  

Please note: you can’t compare Logbook, Payday or Doorstep loans with Compare the Market.   

Can I get a loan from a credit union?

Credit unions are community savings organisations where members pool their savings to lend to each other. They’re cooperatives, so they’re 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 apply for credit.

What loans can I get on benefits?

If you’ve been on certain benefits for a minimum of six months, and you’re struggling to buy the essentials, you might be eligible for a government budgeting loan. These are interest-free loans from the government’s social fund, which can be used to pay for 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’re on certain benefits including: 

  • Income Support 
  • Income-based Job Seeker’s Allowance 
  • Employment and Support Allowance 
  • Pension Credit. 

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 might be able to get a secured loan from the government’s support for mortgage interest programme.

How can I get help without getting a loan?

If you’re having financial difficulties, there are several steps 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 access a government scheme. 
  • Talk to your utility companies. When it comes to your gas, electricity or water bills there might 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 MoneyHelper page. It’s also probably worth checking to see if you’re getting everything you’re entitled to in benefits.   
  • If the latest price increases have left you struggling to pay your debts or energy bills, or you’re still feeling the financial impact of COVID-19, it’s important to contact your provider or lender. They may be able to offer you support. 

The advantages of getting a loan when unemployed

If you’re good at managing your finances and are confident you can comfortably make the repayments, there might be some advantages to getting a loan while you’re out of work: 

  • Quick access to funds – some lenders might have the money in your bank account the next day, which could be useful if you need money in a hurry. 
  • Fixed rate and term – many loans offer a fixed interest rate over a set period. This could help with budgeting, as you’ll know exactly how much to pay back each month. And unlike an overdraft or credit card, your loan will be for a fixed amount, so you won’t be tempted to dip in and borrow more.  
  • Consolidate your debts – if you have other debts, such as credit cards, store cards or an overdraft, you could turn them into one convenient payment at a lower interest rate with a debt consolidation loan
  • It could boost your credit score – if you can show that you’re a responsible borrower by making your loan repayments on time, it could improve your credit rating, which could give you access to lower interest rates in the future.  

The disadvantages of getting a loan when unemployed 

Applying for a loan when you’re unemployed needs some serious thought – ultimately, it could make your financial situation even worse. You’ll need to consider: 

  • Higher interest rates – 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.  
  • You could lose your home – in many instances, you may be forced to seek out riskier loans, like logbook loans, which means you’d need to put up a valuable asset such as your home or car as security. If you don’t repay the money you borrowed, the lender will then have a legal right to repossess your asset. 
  • Rising debt – 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 rating.   

If you’re having financial problems, visit MoneyHelper for a list of the free help available.

How can I compare different loans?

For unsecured loans, look at the APR – the annual percentage rate. The APR shows the total cost of borrowing money over a year, including any fees, which helps you compare deals and 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 cases 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 could look at improving your credit rating. This is used by lenders to decide 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 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 too many different loans or credit cards at the same time. Applications show up on your credit report and can impact your credit score negatively. Before applying for a credit card, use our online eligibility checker to get an idea of whether you’ll qualify for a card before you apply, without affecting your credit score. 

Always make your credit cards and loan payments on time and in full. Late repayment could cause you serious money problems and leave you with bad credit. 

Can I get a loan if I am unemployed but have a guarantor?

Yes, you could get a loan if you were unemployed but have a guarantor to help. In fact, this would probably improve your chances of being accepted. This is because a guarantor loan works by having someone (a friend or family member) agreeing to make your repayments, if you’re unable to afford it. This lowers the risk for the loan provider because they know they’re more likely to get their money back, meaning they’re more likely to accept your application. 

Be careful though, and make sure that you and your guarantor fully understand what you’re agreeing to. If you’re unable to keep up with your repayments, your guarantor will be held responsible and must pay up for you. If they don’t or can’t, this could impact their credit rating too. 

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