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 for the unemployed work and what alternatives are out there.
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 hit 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.
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 even have 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.
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.
Types of personal loans for the unemployed
The types of loan you could be offered if you’re unemployed may be limited. It’s likely you’ll be charged a much higher interest rate, no matter what type of loan you choose.
You need to be confident you can pay back the loan, so think very carefully about your options.
Unsecured personal loans
You don’t need an asset, like your home or car, as security to get an unsecured loan. But interest rates may be higher than for a secured loan.
You might also hear personal loans referred to as tenant loans, as they’re available to renters without homes to put up as security.
You typically need to be employed and have a good credit history to get an unsecured loan with no guarantor.
To access this type of loan, you need a guarantor. This is someone who agrees to repay your debt if you fail to meet your repayments. These loans can have high interest rates.
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.
The vehicle you want to buy is used as security against your loan. You could end up losing the car if you fail to meet the repayments.
These are secured against a vehicle you already own. The lender will own your car until you’ve paid the loan amount in full, plus interest. These loans can be risky and expensive.
If you’re unemployed and finances are tight, it’s probably best to avoid this type of short-term loan. Same-day payday loans can be very expensive and typically have short repayment periods. Plus penalty fees can add up quickly and you could end up in a spiral of debt.
Carefully consider whether a quick 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.
Also known as home credit loans and home collection loans, these charge high rates of interest.
With a doorstep loan, 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 bad credit loan for unemployed?
We can’t say it’s impossible, but no job and a bad credit score certainly won’t help when it comes to applying for a loan.
You might be able to find a specialist lender who’s willing to offer a bad credit loan for unemployed people, but expect to pay a much higher interest rate.
Think very carefully about applying for a loan if your credit rating isn’t up to scratch. If your application is rejected, it might leave a mark on your credit file that could impact your score further.
Before you apply for a loan, get a copy of your credit file to see what your credit rating is.
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 credit score.
- Check your credit report for any mistakes – even a difference in how you spell your name could damage your score. Any errors can be fixed by contacting the credit reference agency.
- 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. It’s a soft search and won’t affect your credit score.
- Always make your credit card and loan payments on time and in full. Late repayment could cause you serious money problems and leave you with bad credit.
What loans can I get when I’m claiming unemployment benefits?
If you claim certain benefits and you’re struggling to buy the essentials, you might be eligible for a government budgeting loan.
Government loans for unemployed people 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 a government loan if you’ve been claiming certain benefits for a minimum of six months. These include:
- 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 to see where you can cut back on spending. There are free budget calculators and planners available 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 available 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 worth checking to see if you’re getting everything you’re entitled to in benefits.
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 small loans for unemployed people 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 – a debt consolidation loan lets you turn other debts, such as credit cards, store cards or an overdraft, into one convenient payment. It may also offer a lower interest rate.
- 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. A good credit score 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’ll approve this type of loan in the first place could be difficult.
- You could lose your home or car – if you’re forced to seek out riskier loans, like logbook loans, you’ll need to put up a valuable asset like your home or car as security. If you don’t repay the money you borrowed, the lender will have a legal right to repossess your asset.
- Rising debt – always make sure you can afford the repayments on any type of loan. 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 advertised APR or APRC has to be available to 51% of successful applicants, it isn’t necessarily the rate you’ll get.
When choosing a loan, also check the early repayment penalties or fees. It’s important to know what charges there may be if you find work and are able to pay off the loan more quickly.
Frequently asked questions
Can I get an unemployed loan from a credit union?
As community-based, non-profit organisations, credit unions charge lower interest rates on loans, so it could be an option if you’re unemployed.
However, 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 should I do if I’m refused a loan?
f you’re refused a loan, don’t apply for another one straight away. Too many applications over a short period of time will damage your credit rating.
You might want to ask the lender why your application was refused. It may be that you don’t fit their criteria or your credit score is too low.
Check your credit report and see if you can improve your score. This can take around six months, so you may need to wait before applying for credit again.
What if I can’t repay the loan?
If you’re struggling with your loan repayments, contact your lender as soon as possible. They 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 penalty fees. This will only add to your financial worries.
Where can I get debt advice?
The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.