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.
How to Get a Loan With No Job
Just because you’re unemployed doesn’t mean you don’t have income. Here are the steps for getting a loan without a job:
1. Determine What Other Income You Have
Not all sources of income will help qualify you for a loan, but here are some types of income lenders might accept:
- Social Security
- Pension fund
- Government annuity
- Unemployment benefits
- Disability income
- VA benefits
- Public assistance
- Capital gains income
- Spouse or partner income
- Interest and dividends income
- Rental property income
- Trust income
- Savings accounts
- Alimony or child support payments
- Freelance income
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.
2. Look for a Lender and Apply
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:
- If your credit score isn’t 670 or above, you’ll need to look for lenders who offer loans to people with fair or poor credit.
- Compare minimum and maximum loan amounts, interest rates and repayment terms to find the best deal.
What Criteria Do Lenders Review?
Lenders evaluate different criteria when considering loan applications. Here are some examples:
- Stable income – If you don’t have a job, lenders will typically need proof of some form of alternate income.
- Credit history – Lenders typically like to see responsible credit behavior, such as a history of making payments on time.
- Debt-to-income ratio – This is the percentage of your gross monthly income that goes to your debts. Lenders use the debt-to-income ratio as a way to determine how well you can manage the payments you already make each month — and how well you’ll be able to repay money you borrow. Aim for a DTI ratio of no more than 43%. You can determine your DTI ratio by dividing the total of your monthly debt payments by your gross monthly income.
- Credit score – Your credit score is a factor in getting a loan approved. In general, the higher your score, the better the chances of approval.
Potential Restrictions for Loans Without a Job
If a lender approves you for a loan but considers you a higher risk, any or all of the following may apply:
- Higher interest rate – A higher interest rate can make the loan more expensive if you don’t pay it off early.
- Shorter loan term – The shorter your loan term, the higher your payments can be.
- Automatic payments – The bank requires automatic payments to help make sure you pay the entire payment on time.
- Collateral – You may have to pledge assets you own, such as a vehicle, property or a certificate of deposit as security for the loan.
- Cosigner – You may have to find a third party who applies with you for the loan. If you can’t make your payments, the cosigner will be responsible.
Reasons I Might Not Qualify for a Loan
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:
- You can’t prove a source of alternate income that would demonstrate your ability to repay the loan.
- You have no source of collateral to offer.
- Your credit history is poor, and your credit score is low.
- Your credit card accounts are maxed out or close to it.
Options If You Don’t Qualify for a Loan
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:
1. Car Title Loan
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 loan amounts equal to 25 to 50% of the value of your car in exchange for its title.
Some lenders will offer title loans to people who have 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, which can make it more difficult to pay back.
2. Cash Advance
If you have a credit card with a cash advance limit, you can withdraw cash, but it comes at a price. 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 having to pay interest for an extended period.
3. Home Equity Line of Credit (HELOC)
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, 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.
4. Loan From a Relative or Friend
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.
5. Life Insurance Policy Loan
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.
Expect to pay interest on a policy loan, however, which is typically higher than what banks or credit unions charge for loans.
6. 401(k) Loan
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.
7. 401(k) Rollover Window
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.
Monitoring Your Credit is Important
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.