Yes, You Can Still Qualify for a Personal Loan With No Job—Here's How

When you apply for a personal loan, most lenders will check your credit history and current employment. But what happens if you need to borrow money while you're unemployed? You might still be able to get a personal loan under those circumstances, but you could have more hoops to jump through compared to someone who is working. An emergency loan for bad credit may be an option, and it's smart to first learn all you can about applying for a loan while unemployed.

Can You Get Approved for a Personal Loan if You're Unemployed?

For most personal loan lenders, checking that you have a reliable income is part of the approval process. The lender wants to make sure you can repay your loan within the agreed-upon time frame. If you're unemployed, that can raise some serious questions about your ability to pay back your debt. Here are some steps to take before you apply:

Calculate How Much You Actually Need to Live On

If you've lost your job and you're hoping to take out a personal loan for everyday expenses, it's worth calculating exactly how much you'd actually require. Determine what it'll take to cover your needs for the next few months, or however long you expect to be without a paycheck. That way you can aim to borrow enough to pay your expenses while you're unemployed but not go into any more debt than necessary.

Weigh Your Ability to Repay

Adding another bill to your budget while you're unemployed is an extra financial burden. So when thinking about your monthly expenses, be sure to include to cost of the loan repayments. If you have any doubts about your ability to repay your loan, you might want to consider some alternatives.

Check Your Credit Reports and Credit Score

You can pull your credit report for free from all three of the major credit bureaus at AnnualCreditReport.com. Comb through each report to see if there are any errors and dispute them as soon as you can. Try to clean up your credit report before submitting a loan application. 

You can usually obtain your credit score through your bank, credit card issuer, or other lender you have a relationship with. There are also online resources for checking your credit scores for free. This will give you an idea of what lenders will see when they pull your credit report. It can also help you figure out which lenders to compare, as some have minimum credit score requirements, and they can vary heavily.

Gather Your Paperwork

Even without a current job, you can prove the last time you earned a paycheck with your most recent pay stubs or W-2 forms. You can also show other types of income through tax returns, bank statements, and other official documents.

Be Ready to Explain the Loan's Intended Use in Your Application

Some lenders will ask you what you intend to use the loan for, while others won't. Your answer can, in some cases, affect the amount of your loan, the interest rate, or both.

Consider a Co-Signer

There's a good chance you might not qualify for a personal loan on your own when you're unemployed and lack sufficient income from other sources. If that's the case, you may want to consider getting a co-signer.

A co-signer is someone who signs onto your loan just as you do and is ultimately responsible for it. If you fall behind on payments, and the co-signer doesn't make them for you, both of you will suffer a serious drop in your credit scores. Only go this route if you and your co-signer have worked out a clear plan about who will be paying off the loan.

Consider Offering Collateral

Most personal loans are unsecured. Secured personal loans let you back your loan with collateral, like a savings account or certificate of deposit (CD). If you can't get an unsecured loan because you're unemployed, there's a chance you could qualify for a secured one. 

Bear in mind that you might not get the same interest rates, borrowing options, or repayment terms as with an unsecured personal loan, but if you need the money for an emergency or to cover basic needs, a secured loan could be a good option.

Factors That Lenders May Use to Evaluate Your Loan Application

Lenders look at a few key factors when reviewing your application, including:

• Credit score and credit history
• Income
• Debt-to-income (DTI) ratio

Each lender weighs these factors differently, but they all hold some significance in your application.

Credit Score and History

The higher your credit score, the more likely you are to qualify for a personal loan for the amount you need at the lowest available interest rate. Having fair or even poor credit doesn't mean you won't qualify, but you may have a harder time getting the full amount you've requested or securing a good interest rate.

If you have a history of unpaid debt or late payments on your credit report, that could hurt your chances of getting approved. It is also the single most important factor in determining your credit score.

Income

While being employed is one way to prove you have a source of income, it isn't the only one. You may have other sources of income, such as:

• Unemployment benefits
• Your spouse or partner's income, if applicable
• Alimony
• Child support
• Social Security benefits (either disability or retirement payouts)
• Investment interest and dividends
• Rental income

Debt-to-Income (DTI) Ratio

Your DTI ratio shows how much of your income goes toward paying off your debts. A high DTI ratio suggests to lenders that it could be difficult for you to make payments on a new loan. A low DTI suggests that even if something happens, you could likely repay your loan. Different lenders have different DTI requirements.

Where to Apply for a Personal Loan While Unemployed

If you're unemployed, there are a number of sources worth checking out when you're thinking of applying for a personal loan. In addition to traditional banks, you might want to consider:

Credit Unions

Even if you don't belong to a credit union right now, you can look into credit union emergency loans. Use the credit union locator to find one near you and see if you're eligible based on its requirements. PenFed Credit Union, for example, will evaluate your income depending on your personal situation. So you may have to turn over bank statements or tax returns instead of pay stubs.

Federal credit unions offer payday alternative loans (PALs) with amounts ranging from $200 to $1,000, but you'll need to be a credit union member for at least a month before you can take out one of these. Loan terms range from one to six months. Their annual percentage rates (APRs) are capped at 28%, while other loans from federal credit unions are capped at 18%. But even at 28%, PALs may be an attractive option compared to loans from private payday lenders, which can carry costs and fees approaching 400% in some states.

You can get a personal loan from many different banks or lenders, such as U.S. Bank, Old National Bank, Teachers Federal Credit Union, NASA Federal, and more. You can check with your financial institution, too. So if you have a NASA Federal account already, you may find that NASA Federal also has personal loans.

Online Lenders 

Some lenders don't have any income verification processes, which makes it easier for you to get a loan based on other merits, like your credit score or credit history. With Upgrade, for example, if you get approved for a loan and accept the terms, you could receive funds in as little as a day. Keep in mind that online lenders often charge an origination fee and have a higher maximum APR compared to other lending options, such as credit unions.

Alternatives to Personal Loans

If you can't get a personal loan because you're unemployed, you might have some other options, including:

• Get a co-signer: As mentioned above, if you can find someone with good or excellent credit who can show proof of employment, and who is willing to co-sign on your loan, you may want to ask them for help.
• Apply for a secured loan: Also previously mentioned, secured personal loans let you put up collateral to back the loan, giving the lender some reassurance that it will be able to recover its money if you're unable to make payments.
• Take out a home equity loan or home equity line of credit (HELOC): If you own your home, you could tap into its current equity by taking out a home equity loan or home equity line of credit (HELOC). Interest rates are typically lower than those of unsecured personal loans, and repayment terms are often longer, which makes monthly payments lower as well. Bear in mind, however, that if you're unable to repay the loan, you could lose your home.

Less formally, you might also want to ask friends and family if they'd be willing to lend you some money to cover immediate costs. It's a good idea to still treat this like an actual loan, including getting everything in writing, to ensure that both you and the lender are on the same page. Additionally, make sure you pay back a loan from a friend or family member within the agreed-upon time frame, otherwise you risk damaging your relationship.

Frequently Asked Questions (FAQs)

The Bottom Line

Taking on additional debt while you're unemployed can be risky and should usually be avoided, if possible. But if you need to take out a personal loan, you may have some options. Take a little time to review your credit profile and compare potential lenders before you apply.