In bygone days, getting a loan during unemployment was all but impossible. A lender always approves a loan application only when they are certain that you are able to repay the debt, which you cannot prove without having a full-time job. Over the years, the methods of lending evolved giving you access to borrowings even if you are out of work.
Unemployment can hit your finances very hard; thanks to direct lenders who are ready to give you a helping hand despite unemployment. You can take out these loans provided you have an alternative source of income. The lender is concerned about your full-time job rather they are worried about your repayment capacity as they want their money back. Therefore, they want you to have an additional source of income, it can be a part-time job, rental income, government benefits or any other income source.
Managing your day-to-day operations is very difficult without a job and it becomes more critical when your credit score is poor. You do not need to worry because you can apply for loans for unemployed with bad credit. Try to take out these loans from reputed lenders such as Loan Store and British Lenders who provide them at competitive interest rates.
Unemployed loans carry a bit higher interest rates because of high default risk. A lender suspects on your repayment capacity because of lack of steady source of income and poor credit history. Further, these loans are to be repaid within a short period. These loans are easy to apply, but repaying can be quite tough. You must be certain about your repayment capacity.
Personal loans are different from unemployment loans
Since unemployment loans do not require collateral, they are unsecured loans. Considering this feature, you can say that they are also personal loans, but they are different from them overall.
Unemployment loans come with small amount that you can afford to pay off out of your income. The maximum duration of these loans will be only a month or may be shorter, depending on the policy of your lender. These loans are repaid in full.
However, personal loans allow you to repay the debt in instalments. You can take out a large amount of fund for big expenses like wedding. The term of these loans may vary from three months to more than a year, depending on the amount you borrow. A lender will approve your personal loan application only when you have a steady source of income. Being unemployed, you are not eligible to apply for any short-term loan except the loans for the unemployed.
These loans can be expensive and difficult to manage. Here are the risks of borrowing them:
- High-interest rates
You can get the loan even if your income is low, but you are likely to pay high-interest rates. The lender charges high-interest rates due to high default risk. Since you do not have a steady source of income, the lender may doubt on your repayment capacity. In case you make a default, the lender will be able to recover their money by levying late payment fees and interest penalties. This scenario continues unless you settle the whole of your account. Failure to repay the loan can damage your credit score and worsen your financial condition. The lender may also issue a County Court Judgement (CCJ) against you.
- Shorter repayment term
If you are a riskier borrower, the lender may restrict you from availing those benefits that are exclusively available to good credit borrowers. The term for your loan will also be shorter. This is because the lender is less likely to believe that your financial circumstances will change in the short run.
What are the alternatives available to you?
Take out unemployed loans only when you have the repayment capacity. Otherwise, you may fall in a debt cycle. If you doubt on your affordability, you should consider the following alternatives:
- Credit cards
If you need money to finance your small expenditure, you can use a credit card as an alternative to your loans. Credit cards allow you to meet your unexpected expenses immediately when you are out of money. However, make sure that you repay your dues on time. If you pay after the grace period expires, you will end up paying high-interest rates and late payment fees.
- Secured loans
If you have already maxed out your credit card or you need big money to tide over, you can secure your unemployed loans by putting a security. Collateral mitigates the risk of the lender as they can liquidate your property to recover money in case of default, hence you get the loan at lower interest rates.
Secured loans are risky as you may lose collateral if you fail to repay your debt on time. You should arrange a guarantor with a good credit history. Your lender will call upon the guarantor to pay if you make default. Remember that missed repayment will damage the credit score of both yours and the guarantors’ too.
The bottom line
Even though unemployed loans come with shorter period, they are easy to manage. If the lender does not approve your application, try to ask them about alternatives available to you. Tell your financial condition and credit needs. The lender will provide you with the personalised deal.