Loans for unemployed people

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Loans for unemployed people

Being unemployed can put a lot of extra pressure on your finances. But while taking out a loan might seem like a solution, the reality is that it can be much harder to borrow money from a mainstream lender if you’re out of work.

If you do get a loan and you don’t make the repayments on time, you could face late payment charges from the lender. This will add to your original debt, and you could find your finances 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.

Can I get a loan without a job or income?

It can be very difficult to get a loan without a job or income. If you don’t have a regular source of money, lenders will see you as a greater risk.

If you do manage to get a loan with no income, it’s likely you’ll be charged a higher interest rate. You might also have put up an asset, such as your home or car, as security for the loan – this is called a secured loan. If you can’t pay off what you owe on a secured loan, the lender has the legal right to seize the asset the loan is secured against – and if that’s your home, you could lose it.

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.

Can I get a bad credit loan if I’m unemployed?

If you don’t have a job, having a bad credit score certainly won’t help when it comes to applying for a loan. You might be able to find a lender who’s willing to offer a bad credit loan for unemployed people, but expect to pay a much higher interest rate.

Our loan eligibility checker will give you an idea of whether you’ll be accepted for a loan before you apply. This is important, as making lots of applications for credit can harm your credit score. Our checker just uses a soft search, which doesn’t affect your credit score.

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How to build your credit score

The higher your credit score, the more likely you are to be offered a loan – and the lower the interest rate is likely to be. The good news is, there are some simple ways to build your credit score. For example:

Get on the electoral roll – lenders use this to check your identity. Registering to vote could help improve your credit score. Make sure you re-register if you move house.
Check your credit report with the UK’s three biggest credit reference agencies – Equifax, Experian and TransUnion – for any mistakes. Even a difference in how you spell your name could damage your score. Any errors can be fixed by contacting the relevant credit agency.
Always make your loan and credit card payments on time and in full. It shows lenders that you’re a responsible borrower who can manage their finances.

What loans can I get when I’m claiming unemployment benefits?

Budgeting loan

You could be eligible for a budgeting loan if you’ve been claiming one or more of these benefits for six months:

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

A budgeting loan can be used to pay for clothing, rent, household items, home maintenance and improvements, and costs linked to getting a new job, for example.

Repayments are taken directly from your benefits and the amount you repay is based on your income and what you can afford.

Budgeting advance

If you’re on Universal Credit, you may be able to get a budgeting advance to help pay for emergency household costs, such as buying a new cooker.

Support for mortgage interest 

If you’re struggling to pay your mortgage or meet the repayments on a home improvement loan, the government’s Support for Mortgage Interest (SMI) could help.

It’s a secured loan but you don’t get a lump sum. Payments will be made direct to the mortgage provider or lender towards the interest on your mortgage or home improvement loan.

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 for unemployed people.

If you’re a homeowner, talk to your mortgage lender – it may agree to you taking a mortgage holiday, paying just the interest on your mortgage or extending the length of your mortgage. Be aware, though, that this can result in the mortgage costing you more in the long run due to interest being charged over a longer period.
Talk to your utility companies – help might be available if you’re in arrears on your gas, electricity or water bill.
Get advice – MoneyHelper has information on debt management, where to get free debt advice and help with the cost of living.

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 worse. You’ll need to consider:

Higher interest rates – loans for unemployed people, or people with no income, often come with high interest rates.
You could lose your home or car – if you have to use your home or car as security for a loan, the lender has a legal right to repossess the asset if you fail to make the repayments.
Whether you can afford to take on more debt – always make sure you can afford the repayments. Missing one could get you further into debt, as well as damaging your credit rating.

Frequently asked questions

Can I get an unemployed loan from a credit union?

You might be able to get a loan from a credit union if you’re out of work. But you’ll need to be a member of the credit union to borrow from it. It may also want you to build up some savings with it before you apply for credit.

As community-based, non-profit organisations, credit unions typically charge lower interest rates on loans than mainstream lenders.

What should I do if I’m refused a loan?

If you’re refused a loan, think carefully before applying for another one straight away. Too many loan applications over a short period of time can suggest to lenders that you’re struggling financially and can damage your credit rating.

According to Citizens Advice, if a lender refuses you credit it has to tell you which credit reference agency it used. You can then check whether your credit record with that agency contains any errors and get them fixed if so.

If there aren’t any errors, take steps to improve your score. This can take around six months, so you may need to wait before applying for credit again.

How to improve your credit score

What if I can’t repay the loan?

If you’re struggling with your loan repayments, contact your lender as soon as possible. It should offer support and may be able to arrange a more affordable repayment plan.

If you do nothing and miss a payment, you could be charged a penalty fee. If you repeatedly miss your repayments, the lender can: