Unemployment Loans & Bad Credit: Your Options for Financial Recovery

If you’ve recently hit a financial rough patch, then a personal loan can help you get back on your feet. But if you’re unemployed and have bad credit, getting approved for a personal loan becomes substantially harder, though not impossible.

To qualify for a personal loan, you need to understand what lenders are looking for and find a way to make your application more attractive. You also need to know what lenders are willing to work with borrowers in your situation.

Let’s look at how you can get a personal loan, even if you’re unemployed and have bad credit. I’ll also share some alternatives you can consider if a personal loan isn’t an option for you.

Can I apply for a personal loan if I’m unemployed?

If you’re unemployed, getting approved for a personal loan may feel like a long shot. But being employed in a part-time or full-time job isn’t a requirement for a personal loan.

Instead, lenders are looking to see that you have a regular income and can handle the monthly payments. So if you can provide proof of income, you’ll improve the odds of approval.

For most people, their primary source of income is a job. But lenders will consider alternative sources of income which includes things like:

• Social Security payments
• Retirement
• Disability payments
• Your spouse or partner’s income
• Alimony or child support

How Lenders Evaluate Loan Applications

Personal loans are riskier than other types of loans because they don’t require any collateral. So if you default on the loan payments, your lender will take a financial loss on that loan.

That’s why lenders want to see that a borrower can repay the loan amount. So when you apply for a loan, most lenders will focus on the following criteria:

• Source of income: You don’t have to be employed to take out a personal loan, but you do need to have proof of income. This income can include disability payments, Social Security, and more.
• Debt-to-income ratio: Lenders will calculate your debt-to-income ratio by dividing your total monthly debt payments by your monthly income. If your debt-to-income ratio is high, this can indicate you would have a hard time managing another monthly loan payment.
• Credit history: And finally, lenders will consider your credit history. This history includes your credit score, payment history, and any recent charge-offs on your account.

4 Personal Loans to Consider for Bad Credit

If you’re unemployed and have bad credit, some online lenders will still be willing to work with you. Listed below are four lending marketplaces you can consider.

Personal Loan Alternatives

After it’s all said and done, what if you’re unable to qualify for a personal loan? How can you access the cash you need in the meantime? Listed below are four alternatives you can consider.

• Secured loans: Personal loans for unemployed people can be challenging to qualify for since they don’t require borrowers to put down any collateral. If this is a problem for you, then you can try applying for a secured loan. With secured loans, you use your home or another asset as collateral to guarantee the loan.
• Credit card cash advances: If you already have a credit card, then you may not need a personal loan. Most credit cards will let you take out a cash advance. However, if you choose to go this route, you need to be careful. A credit card cash advance comes with high interest rates, so if you can carry a balance, this will cost you a lot of money in interest.
• HELOC: If you have equity in your home, you can take out a home equity line of credit (HELOC). A HELOC is a revolving line of credit that you can borrow money from as you need it. But this can be a risky move because if you default on the payments, you could end up losing your home.
• Look for a cosigner: If you’re having a hard time qualifying for a personal loan, you can try applying with a creditworthy cosigner. Not only will this help you get past your low credit score, that person’s income will also be considered on the loan application.

While your options are certainly limited as someone who is unemployed and in need of money, you still want to avoid working with predatory lenders that offer car title loans or payday loans.

With payday loans, you can get trapped in a payday loan debt cycle. And with a car title loan, you can actually lose your car. So these types of loans should be a last resort if considered at all.

Summary

If you’re unemployed and have a bad credit score, it’s still possible for you to apply for a personal loan. If you can show lenders that you can handle the monthly payments, they will be more willing to lend you the money you need.

However, just because it’s possible doesn’t mean it’s the right choice. If you’re already in a precarious financial position, it may not be a good idea to add another monthly payment into the mix.

You might consider alternatives ways to access the money you need. For example, taking out a cash advance or a HELOC may be better alternatives. That way, you can get a little financial breathing room until you’re able to get back on your feet.