Even when you don’t have a job, it’s still possible to get approved for a loan. It may not be easy, but as long as you can prove to the lender that you have access to some sort of income to pay back the loan, your goal of getting a loan just might become a reality.
Just because you’re unemployed doesn’t mean you don’t have income. Here are the steps for getting a loan without a job:
Not all sources of income will help qualify you for a loan, but here are some types of income lenders might accept:
Another way to get approved for a loan without a job is if you’ve received a recent job offer and accepted. If you can get a letter from your future employer that includes details — such as the date you’ll start work, your position and salary — some lenders might be willing to accept the information as proof of income.
When you don’t have a job, it’s unlikely you’ll have your pick of lenders — so you may have to shop around. Here’s what you need to consider when choosing a lender:
Lenders evaluate different criteria when considering loan applications. Here are some examples:
If a lender approves you for a loan but considers you a higher risk, any or all of the following may apply:
No single factor can guarantee your approval for a loan. Because lenders consider a variety of factors, here are some reasons why you might not be able to qualify for a personal loan when you don’t have a job:
If you don’t qualify for a personal loan from a bank or credit union, you may have other options. Here are a few to consider:
A car title loan is a short-term, expensive loan — typically for 15 or 30 days at a triple-digit APR. In general, car title lenders offer loan amounts of 25 to 50% of your car's value in exchange for its title.
Some lenders offer title loans to people with vehicles that aren’t paid off, as long as the vehicle has equity. In any case, the loan company will hold your vehicle’s title until you pay back the loan.
If you are unable to pay back the loan at the end of its term, some car lenders may allow you to roll over the loan into a new loan. Additional fees and interest will be added to the new loan; however, this can make repayment more difficult.
If you have a credit card with a cash advance limit, you can withdraw cash, but it will cost you. Average cash advance APRs hover around 25%, and fees are typically around 5% or a minimum of $5 to $10, which can quickly add up.
If you opt for a cash advance, consider paying it off as quickly as possible to avoid paying interest for an extended period.
A HELOC is a loan that’s based on the value of your home, less the amount you owe on your mortgage, if any. The line of credit functions like that available on a credit card, allowing you to borrow funds up to your credit limit at a fluctuating interest rate. Typically, you can borrow up to 85% of your home’s equity.
To qualify for a HELOC, you’ll need, among other things, a good credit score and a debt-to-income ratio of no more than 45%. You’ll also have to obtain an appraisal on your home, which also comes at a cost.
If a relative or friend is willing to loan you the money you need, offer to pay interest and suggest a plan for paying the person back. After you both have agreed on the amount and terms of the loan, draw up a contract that details the total amount you’re borrowing, the interest rate and how long it will take you to pay the money back to avoid any misunderstandings.
If you have a whole life insurance policy, you may be able to take out a policy loan to get the cash you need. Whole life policies have two benefits: the death benefit and the cash value.
When the money you pay into the policy exceeds the death benefit, those additional funds are designated as the cash value amount of the policy, which you can borrow against. The policy functions as collateral for the loan.
The advantage of an insurance policy loan is that no credit approval is needed since you are borrowing against funds you’ve already paid. You can use the loan for anything you like, and because the IRS doesn’t recognize an insurance policy loan as income, you won’t have to pay taxes on the amount you borrow.
However, expect to pay interest on a policy loan, which is typically higher than what banks or credit unions charge for loans.
Although most employers will not allow you to take out a 401(k) loan once you’re no longer employed, you have other options to access your money without being heavily penalized. Typically, if you withdraw funds from your 401(k) plan before age 59-½, you will have to pay a 10% penalty. If you’re over 55, however, you can withdraw your 401(k) funds from a former employer’s plan for any reason without having to pay the 10% penalty, which is known as the Rule of 55.
You may also qualify for a hardship withdrawal if you’re no longer employed, but you’ll need to check with your former employer to see if it offers this option. Expenses that qualify for hardship withdrawal include medical expenses or payments needed to prevent foreclosure or eviction from your principal residence. Withdrawals are subject to income tax. They are also subject to the 10% withdrawal penalty if you are under age 59-½.
If you only need the money for a short time, the IRS will allow you to withdraw funds from your 401(k) without penalties or interest if you deposit the funds in another retirement account within 60 days. If you don’t replace the funds, however, the funds will be subject to the same penalties and interest as if you withdrew money from your account before 59-½ years of age.
When you need a loan and you don’t have a job, your credit is an important factor in whether lenders will approve your application. But good credit doesn’t happen on its own — it takes work. If you’re not monitoring your credit on a regular basis, consider signing up for ScoreSense.
ScoreSense is a product that offers credit scores and reports from all three major credit reporting agencies, as well as monthly updates, daily monitoring, and credit alerts, which can help you stay aware of how well — or poorly — you’re doing credit-wise.