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Can I Get a Personal Loan with No Job?

| MoneyRates Personal Finance Specialist.
min read

professional-man-stressedLosing your job is stressful. If you're broke, it's worse.

You may be able to get a personal loan with no job if you apply fast. Here's how to get a personal loan while unemployed:

  • Apply early. Don't tap your credit cards first and increase your debt balances.
  • The loan term won't exceed the time you're eligible for unemployment benefits.
  • You have to apply for unemployment benefits before trying to get a personal loan.

Personal Loan With No Job: Apply ASAP

You might think it's smarter to use up your savings and then hit your credit cards before applying for a personal loan. You would be wrong.

There is a lot of truth to the old saying that banks only lend to people who don't need the money.

You are a much more attractive applicant if you still have savings in the bank and you have not piled on debt by running up your credit card balances.

A personal loan when you're unemployed is really a form of insurance. You may be able to protect your credit rating if you have extra money with which to make your payments while you look for a new job. Losing your good credit rating could cost you thousands in the future or even affect your attempts to find new work.

It's smart to apply for a personal loan as soon as you become unemployed for three reasons:

  1. Most lenders don't approve loans for terms longer than unemployment benefits run. So applying earlier gets you more time to repay the loan. The longer term reduces your monthly payments.
  2. Applying early before using credit cards to make ends meet helps you qualify for a larger loan amount.
  3. If you still have some savings, you're a more attractive applicant. Note that you need a bank account to get a personal loan, so open one if you don't already have one.

The bottom line is that you're more likely to obtain loan approval and get better terms if you apply as soon as your state approves your unemployment benefits.

Personal Loan When You're Unemployed: Dos and Don'ts

When you're unemployed, be aware of the following dangers:

  1. Don't use credit cards if you can avoid it.

    Increasing your balances reduces your credit score. Larger credit card balances also increase your minimum payments. That reduces what you can borrow with your personal loan.

  2. Do apply for unemployment benefits as soon as you get your pink slip.

    Apply directly with your state's unemployment office (avoid third-party sites). Apply online if possible, and complete your application carefully. Even a typo can delay your benefits.

  3. Do stop all unnecessary spending.

    Cancel nonessential accounts like apps and entertainment if you can. Change to a cheaper phone plan if possible, and minimize utility bills by being diligent about lights, heat, etc.

  4. Do open a bank account if you don't already have one.

    When you take out a personal loan with no job, lenders require you to have automatic payments deducted from your bank account.

  5. Don't be so desperate that you choose a bad loan.

    Especially avoid payday or title loans, which can have annual percentage rates (APRs) exceeding 1,000%.

  6. Do pay your bills on time.

    It's crucial to protect your credit rating and high interest rates for credit in the future.

How to Get a Personal Loan for Unemployed Borrowers

Lenders need to verify your income when you apply for a personal loan with no job.

Provide the letter or form that you receive from the unemployment department that confirms your benefits. If you receive severance pay from your employer, supply the documents that prove its amount and duration. Severance pay does not necessarily affect your unemployment eligibility or amount.

You'll need to give the lender copies of your bank statements. That's why you don't want to drain your accounts before applying. The more you have in savings, the more attractive an applicant you are. In addition, your lender will want to set up automatic payments from your checking or savings account.

If you have a new job offer (congratulations!) but have not yet started, you can apply for a personal loan. Give the lender your offer letter showing your start date and pay. You should be able to borrow with a longer term and lower payment when you have a job offer.

Interest Rates and Terms for Unemployed Personal Loans

When you apply for a personal loan with no job, your interest rate depends on the loan amount, length of the loan and your credit rating. In general, personal loans with shorter terms are less risky for lenders and have lower interest rates. Personal loan interest rates range between 5% and 40% from mainstream lenders.

Unemployment benefits in most states last 26 weeks (six months), and your loan term won't normally exceed that. The shorter the term, the higher your monthly payment, so applying fast is key to getting a payment that you can afford.

The table below shows how the number of months you borrow affects your payment. Applying early gets you a higher maximum loan amount and/or a lower monthly payment.

Payment vs Loan Term for Personal Loans
1 Month2 Months3 Months4 Months5 Months6 Months
Loan Amt.Int. RatePaymentPaymentPaymentPaymentPaymentPayment
$ 1,00010%$1,008$506$339$255$205$172
$ 2,00010%$2,017$1,013$678$510$410$343
$ 5,00010%$5,042$2,531$1,695$1,276$1,025$858

Qualifying for a Personal Loan When Unemployed

Your personal loan payment plus the total payments for your other accounts determines how much lenders will loan you. That's because lenders calculate the relationship between your monthly debt payments and gross (before tax) monthly income. This relationship is your debt-to-income ratio, or DTI.

Suppose Jenny Jones gets $600 a week in unemployment benefits ($2,600 a month) and has other income of $400 a month. She pays $750 a month for rent and has a $150 a month car payment. How much can she borrow with a personal loan?

It depends on the lender.

Many personal loan providers, like mortgage lenders, set their maximum DTI at 43% for borrowers with good credit. So Jenny would be able to have total monthly payments of .43 * $3,000, or $1,290. Since she already spends $900 a month for rent and the car payments, she may get approved for a personal loan payment of up to $390 per month. That's a $2,000 loan if she gets a six-month term.

How to Borrow More if You Don't Have a Job

It can be difficult to get a loan when you're on unemployment because most benefits max out at about half of what you earned at your last job, up to a weekly maximum set by your state.

If you have additional income sources, you can apply to borrow more. For example, if you can document your earnings on a side gig, include that on your application. If you loaned money to a friend and he is repaying you in monthly installments, document that you are owed the money and that the debtor is repaying you reliably. That would be a note that you both sign showing the amount owed, interest rate and repayment terms. You'll also want to supply bank statements or canceled checks showing that the money is being reliably paid.

Bringing in a co-signer can allow you to borrow more. This person needs to be financially healthy and have decent credit. Understand that your co-signer becomes responsible for the unpaid balance if you don't repay your personal loan as agreed. So please don't dump your problems on a friend if you doubt your ability to repay your loan.

You may be able to borrow more by pledging an asset as security for the loan. For example, your car (if paid off), real estate or a retirement account. However, avoid auto title loans which have extremely short terms, high up-front fees and punishing interest rates.

Why Take a Personal Loan When Unemployed?

There is only one reason to take out a personal loan when unemployed. It's to guard against unexpected expenses for necessary things. For instance, a car repair so you can look for work. A personal loan can provide a cushion in the bank for emergencies and help you stretch your emergency savings.

If your unemployment survival plan involves using credit cards to cover expenses while you are out of the workforce, a personal loan might be less costly. In general, personal loan interest rates are lower than those of credit cards. And they are usually fixed - or you can combine a personal loan with credit cards to stretch your resources further.

Surviving Unemployment: Savings + Personal Loans + Credit Cards

If you lose your job, you can stretch your unemployment check and savings by using credit cards for groceries, gas and payments for utilities. The advantage of using existing credit cards when unemployed is that you don't have to qualify to borrow when you are financially weak.

Try to avoid taking cash advances on your credit cards. The average rate for cash advances is higher and there are fees as well. A personal loan for cash is a better bet.

If you use credit cards to get through a stretch of unemployment, you might save by paying them off with a personal loan at a lower interest rate. The other advantage of a personal loan is that it has a fixed interest rate and payment. You can't extend your debt forever with minimum payments that keep you in debt for decades.

Protect Your Future Now

The best time to borrow is when you don't need the money. So getting approved for a personal line of credit while you still have a job is a good idea if you don't have emergency savings to cover at least three months of expenses.

If you are disciplined, you could open a new credit card account and keep it for emergencies only.

Start an emergency savings account now if you don't have one. Most financial experts recommend that you save enough to pay your bills and housing costs for two months if you are a salaried employee with a stable job. You'll need more if you are self-employed or work on commission - six months is healthy.

Not everyone who loses a job can be helped with a personal loan. But if you qualify and apply early, they might be able to help you save money and your credit rating.

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