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The Covid-19 pandemic has increased the financial burden on many individuals and families who have lost all or part of their income through leave or dismissal. But regardless of your employment status, there are some expenses that you cannot avoid even when the time is tight.
You might have decided to take entrepreneurship by the horns, but it turns out that starting a small business is more expensive than you initially thought. Or maybe an expensive home repair fell into your lap and your emergency fund can’t handle it.
Whatever the reason, a personal loan can be a useful tool when it comes to getting the money you need on expenses that you may not otherwise be able to cover immediately. But like any other financial product or service, personal loans are not without their own considerations that potential borrowers should consider.
Select spoke to financial expert Danetha Doe to find out what you need to know about getting a personal loan if you are unemployed.
How do you apply for a personal loan?
First and foremost, you need to figure out how much cash to borrow, since a personal loan means you are borrowing a fixed amount of money, Doe says.
If you’ve lost your job and are considering taking out a personal loan to cover lost wages, think about how much you actually need to live on. Doe recommends that you multiply your total monthly expenses by the number of months you think it will take to find a new job. In this way, you can apply for a loan taking this total amount into account.
Before you go to a lender, check your credit report to make sure everything looks correct and you know your credit history. In the event something does not look right on your credit report, it is best to deny the mistake before applying for a personal loan.
Knowing your credit history can help you start looking for lenders to qualify for. Some lenders, like Marcus from Goldman Sachs and LightStream, have tools online that you can use to find out if you would qualify for a personal loan without submitting a full application.
Select also has a comparison tool that you can use to review different loan offers. You need to answer 16 questions, including your annual income, date of birth and social security number, so Even Financial can identify the top deals for you. The service is free, secure and does not affect your creditworthiness.
Note to editors: The tool is provided and operated by Even Financial, a search and comparison engine that matches you with third-party providers. All information you provide will be passed directly to Even Financial. Select has no access to the data you have provided. Select can receive an affiliate commission from partner offers in the Even Financial tool. The Commission has no influence on the selection in the order of the tenders.
Once you are ready to submit your application, you will need to gather all of your documents. “You’re going to want your latest paycheck because you need to fill out information about your net income,” Doe says. “And if you’ve moved, you’ll need updated address information.”
And while there are a variety of ways to use a personal loan – a wedding, home renovation, debt consolidation, funeral expense, emergency expense, and more – you usually need to explain how you will use the money when you submit your application.
In addition to making an application, the lender will also do a credit check or perform a hard inquiry that could affect your creditworthiness. The credit check examines your financial profile so that the lender can record your debts (such as credit cards, other loans, etc. as your debt-to-income ratio).
While you don’t need perfect credit to be approved for a personal loan, the higher your credit, the more likely it is that you will get better credit terms such as no fees and a lower interest rate. (If you have bad credit, pick a rounded list of the best personal loans for bad credit.)
Can you get credit if you are unemployed?
It is possible to get approved for a personal loan if you are unemployed, Doe says.
“Being unemployed makes the process more difficult. From the lender’s point of view, they want to borrow money to someone they think they can pay back,” she says. “So when you find yourself in a no-money situation it can be difficult for you to repay. If you have in the past paid off your credit cards and other debts on time in the past, borrowing is going to be in your favor . “
Also, keep in mind that income doesn’t always necessarily come from a traditional paycheck. According to the IRS, other ways to prove earned income may include gig economy work, self-employment money, union strike benefits, some disability benefits, and non-taxable combat wages.
And of course, it is very important that you are comfortable with the effects a loan repayment plan can have on your finances. You may have no choice but to borrow more until you can improve your situation.
Take the time to consider how much the monthly loan payments will affect your overall budget. In some cases, it is worth paying the additional financial obligation for an emergency, e.g. B. a car repair so you can commute to and from new interviews. In other cases, taking on additional debt may not be the best decision.
Can you get admission if you have inconsistent income?
If you are a freelancer, gig economy worker, or self-employed, chances are you’ve experienced (or continue to experience) periods of inconsistent income. Regardless, you can still get approval for a personal loan. It can help if you can show you’ve been in business for at least two years. Otherwise, the lender may ask you to use a co-signer for the loan.
What if a personal loan doesn’t suit me?
If a personal loan doesn’t sound right for your circumstances, you have other options to cover the costs. You might want to consider a personal line of credit instead. It’s similar to a loan, but it allows you to borrow money, repay the amount, and then borrow again for a period of time.
“A personal line of credit can be used when you don’t know exactly how much money you need but you know you need a buffer,” Doe says. “If an unemployed person doesn’t know how long it will take to get an income back, a personal loan may be a better choice because they don’t know how much they need.”
Also, keep in mind that private lines of credit may incur interest and you will have to pay these fees as well.
While you may feel that your options are limited when you are unemployed and in need of money, keep an eye out for predatory lenders like payday loans. You pay very high interest rates even if you borrow a small amount of money.
If you do decide to borrow money, take the time to read the fine print and understand the repayment terms so that you are not surprised by additional fees.
Personal loans can be a valuable tool for anyone who needs money to cover an expense. Even if you are unemployed or have inconsistent income, you can still be eligible for a personal loan, but it can be more difficult (but not impossible) to prove that you can pay the money back. You should always analyze your personal circumstances to ensure that new debt or other financial decisions are the best move for you.
Note to editors: Opinions, analysis, reviews or recommendations expressed in this article are solely those of the Select editors and have not been reviewed, approved or otherwise endorsed by third parties.