How to Get a Personal Loan When You’re Unemployed

If you become unemployed, taking a personal loan may be a tough undertaking. However, it can be done. First, review what lenders consider for personal loan approval for someone currently unemployed. Then, the following information will give you the details you need to understand how personal loan approval works, how you can qualify for a personal loan, and your loan repayment considerations if you are unemployed.

Unemployed people can qualify for a personal loan

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What Lenders Consider When Approving a Personal Loan

You may worry about personal loan approval during unemployment, especially if the lender uses income as a factor for approval. However, don’t worry, it can still be done. You do have some flexibility, thanks to the law. The Equal Credit Opportunity Act prevents a lender from requiring you to submit specific income sources, such as alimony and child support or public assistance.


When applying for personal loan approval during a period of unemployment, you can use alternative sources of income, some of which include the following:

  • Spousal Income. Are you married? If so, you may be able to add your spouse’s income to your loan application. This can be used if you plan to use this income source for personal loan repayment. If you choose to include your spouse’s earnings, you need to add him or her as a loan co-applicant.
  • Investments. Money coming from investments, such as real estate, may also be used to show your ability to handle personal loan repayment. While one-time capital gains may not be considered, you can still include recurring income sources – either from rental properties or stock dividends.
  • Retirement Benefits. If you happen to receive regular 401(k) withdrawals or Social Security benefits, you can use this income source, as well, to apply for a personal loan if you recently lost your job.
  • Other Payment Sources. While you do not legally have to provide this information, you can list unemployment payments or alimony and child support as predictable income sources.


  • Your Debt-to-Income Ratio and Credit History

Besides reviewing the income for a personal loan, a lender will also check your debt-to-income ratio and credit history. The debt-to-income (DTI) ratio gives the lender an idea about the debt you have accumulated concerning the income you receive before the deduction of insurance or taxes. To get this rate, the lender divides the total debts paid for the month by the gross monthly income.

Lenders scrutinize your credit history, as well, when considering approval for an unsecured personal loan. A lender will review your credit scores with the reporting credit agencies and check for accounts in collection or bankruptcy.

  • Your Credit Rating

Your credit rating or score shows a lender how risky it will be to lend money to you. Normally, the FICO credit score model is used for this purpose. The model spans from 300 to 850, with credit scores with good to excellent ratings (at least 670) receiving the best interest rates. FICO ranks your score, based on

the amount of debt you owe, your mix of credit (e.g., credit cards, auto loan, mortgage), payment history, length of credit history, and the number of new accounts.

  • Your Credit Report

Check your credit report information frequently to make sure the details are accurate. The Fair Credit Reporting Act requires each consumer reporting agency to keep fair and correct information in your credit report file. A strong credit rating and profile can help you obtain a personal loan in instances when you lack income.


What Sources of Income are Legit for a Personal Loan?

Many different income sources can be taken into consideration when applying for a personal loan. Some of the most common include:

  • Spousal Income – Spousal income can be taken into consideration when applying for a loan if your spouse is still employed and is earning a regular income. 
  • Capital Gains – Capital gains are any earnings on investments or from the sale of a property and these funds can help you obtain a personal loan if you are unemployed. 
  • Retirement Benefits – If you are retired but have retirement benefits from your previous place of employment, these benefits can be taken into account as an alternative source of income when applying for a personal loan.
  • Pension – Any pension amount is a source of income that can aid you in applying for a loan.
  • Unemployment Benefits – If you are unemployed and are receiving unemployment benefits from the government, these benefits are considered an alternative source of income. 
  • Disability Payments – If you are disabled and are claiming disability payments from the government, you can list these payments as an income source when applying for a personal loan. 
  • Rental Income – If you are a landlord and are renting out a property to a tenant, this monthly rental income is a valid income source and can help you obtain a personal loan.
  • Inheritance – If you have inherited any money, these funds can be listed as an alternative income source on a personal loan application.
  • Alimony – Alimony is financial support that is being paid to you by an ex-spouse after a divorce or separation. These funds are considered an income source.
  • Child Support – Child support is funds that are paid to you by your children’s other parent to help support them after a separation and this support can be listed as an income source on a loan application. out of work.

What is Collateral Income?

Taking out a loan backed by collateral means that you use your car, house, investments, retirement accounts, stocks, other real estates, jewelry, art, or any other valuable possession against your loan. If for any reason you are unable to pay back your loan, the item that you have listed as collateral will be taken from you. If you have something of value, obtaining a collateral loan can be easy but it can also be very risky. If something unfortunate and unforeseeable happens in the future that prevents you from being able to make your loan payments, you will lose whichever valuable possession you have put up as collateral.

What if the Unemployment is Due to COVID-19?

 COVID-19 has caused many people to fall into hard times and to either temporarily or permanently become unemployed. Many financial institutions have devised special programs to assist those who have been affected by COVID-19. These lenders offer specific hardship loans to those who have become unemployed due to the pandemic and many of these programs have more lenient policies.

Is Taking Out A Loan When Unemployed a Good Idea?

Taking out a loan is an excellent way to solve many financial problems or to assist with situations like debt consolidation or financing an important milestone, like a wedding. With all of this in mind, the loaner must be fully aware of all of the risks associated with taking out a loan, especially if they are currently in a state of unemployment. 

If you do get a personal loan during unemployment, you need to realize the risks of personal loan repayment. Some of the biggest issues that arise with this scenario include:

  • Not being able to pay back the loan – Naturally, the biggest risk involves not being able to pay off the loan. Failing to repay a loan damages your credit and can make a difficult financial situation even worse.
  • Higher interest rates – Also, if you get a personal loan during unemployment, you may have to pay a higher interest rate. A lower credit score or lack of income often leads to increased loan costs, so it is important to keep this in mind.
  • Shorter repayment term – Moreover, the lender may approve the loan for a shorter repayment term, as the risk, for you, as a borrower increases. The lender often limits the repayment period, as he or she usually does not believe your economic situation will change in the short term.

Taking a personal loan out to meet your expenses when unemployed may be manageable. Just make sure you stay mindful of the expenses. By using a reliable co-signer, you can obtain a loan during a period of unemployment with less concern. It also helps to regularly check your credit score and credit report. Doing so will ensure that you can access a loan more easily, even when you are out of work.

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