Your personal loan's approval is based on your proof of income. Seems like a catch-22 when you hear the words 'loan for unemployed people, ' right?
Well, in case you are wondering if the title is clickbait, let us ensure you that what it says is entirely possible! Yes, some lenders will happily grant you a loan even if you do not bring a salary every month.
Let's find out whether getting a loan when you are unemployed is possible or not.
What’s a loan for the unemployed?
As the name says, it's a loan for people who don't get a regular paycheck from a 9 to 5 job. Most of you are probably baffled how a person can get approved for a loan when the lender can't ensure that they will be able to repay the loan.
Well, the approval of this loan does not depend on the traditional form of income. First, let’s take a look at the different sources of income and then we will talk about the eligibility criteria:
Sources of income
In the lending world, income plays a huge role. COVID has hit the workforce hard, and many people are still unemployed, struggling every day to support their families. This situation makes getting a loan more challenging but not impossible.
Here are some alternatives that can be your source of income for a personal loan:
Some lenders allow you to mention your spouse's income as a source of income for the loan's approval. Your spouse will have to sign as a co-applicant. This step ensures the lender that you and your spouse will be legally bound to pay back the loan even if you have a falling out.
Money from investments such as real estate can also be a source of income. However, this capital gain needs to be recurring, so the lender knows the payments won't stop in the middle.
If you have a state pension, personal pension and/or employer pension or benefits when you retire, then some lenders will combine these together along with some other forms of income you have to allow you to apply for a loan.
If you are on certain state benefits like Centrelink payments then some loan companies will consider you for a loan application.
Eligibility criteria for a loan for the unemployed
Every borrower's situation is different, and lenders understand that. A borrower with a good credit score is more likely to get better loan terms than a borrower who does have one. This is why a person's credit history plays a major role in the approval process.
It shows the lender whether you can pay back the loan or not. Apart from this, the lender may ask for the following information:
Any form of income (proof of benefits or other pay stubs)
Bank transaction history of 90 days
Risks of getting loan when you are unemployed
A lender takes a huge risk when he agrees to approve your application. Since you don't have any traditional income coming in, you might default on the loan. There are even risks for the borrower, which include:
High Interest Rate: A borrower with low income will be subjected to a high interest rate, which can cause difficulty in repaying the loan.
Short Repayment Term: If your credit score is low and your credit history shows debts, the lender might set their own loan terms.
Another possibility of getting loan when you are unemployed is borrowing against your home equity line of credit. If you are still paying the mortgage but have enough equity to put up as collateral, the lender might agree to give you a loan without any strict requirements.
When choosing a loan for the unemployed, make sure to read the fine print so that you don't get hit by any additional fees. While you may be able to renegotiate your loan terms, you may have to pay a small renewal charge, and the interest rate is recalculated.
Ultimately, unless you have income coming in or a co-singer who can pay the loan back if you cannot, then you need to really think about whether it’s a good idea to borrow money and the reasons why you need it.
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