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Loans for unemployed people
6th October 2021
Loans for unemployed people
If you're not currently employed and find yourself under extra financial pressure, times can feel tight.
Without a steady income to rely on it may be difficult to keep on top of your monthly outgoings in the short term, so it may be suitable to consider a loan to cope with the financial emergency.
Searching for loans for unemployed people could be a potential solution, but getting a loan from mainstream lenders could prove difficult - and some of the loan products available to people in these circumstances can end up causing more financial problems in the long run.
Here, we’ll take a look at the options open to you if you're unemployed, as well as how different types of loans work, the potential risks and some of the alternatives.
Can I get a loan if I'm unemployed?
Yes, personal loans for the unemployed are available, but they will usually attract higher interest rates.
If you're not working, you may be asked to use your home or vehicle as security for the loan, or have to ask someone to stand as a guarantor.
Unfortunately, loan products with favourable rates of interest from major high street banks are normally reserved for people with good credit ratings, who have shown that they can borrow responsibly in the past.
High street lenders are likely to ask for your current employment details during the application process, as this would show them that you have a steady income that allows you to make repayments on time, which lowers the potential risk you pose.
But if you're unemployed that doesn't mean that you can't have access to loan products.
There are responsible lenders, many of them online, who offer short-term unemployed loans, loans for people on benefits or loans for those who have a less-than-perfect credit history.
However, online loans could still present high rates of interest, which could make repayments harder to manage.
And some providers may simply be payday lenders who advertise themselves as specialists in loans for unemployed people, so it's very important to know who you are dealing with, and the loan product you're applying for.
Do benefits count as income if I need to borrow money?
Being unemployed doesn't necessarily mean that you have no income available every month. If you receive benefits including Universal Credit, some lenders may be willing to lend you cash as this is effectively a regular monthly income that you're receiving.
Dot Dot offer short-term loan products to those who receive benefits as their primary source of income, and, like Dot Dot, most lenders will clearly state what counts as income early in the process when you're applying for loans for the unemployed.
What should I avoid doing?
Promises of swift cash payments and easy credit checks can be appealing, but payday loans and bad credit loans often come with terms and conditions that can appear to be extremely demanding.
Unlike many other loan products, payday loans are designed to be repaid within days, rather than years, and they usually have very high interest rates.
If you don't make your repayments on time and in full, you'll end up having to pay much more back.
Payday loans are meant for short-term borrowing and should only be used as a way of tiding you over until you get paid - so if you're unemployed this is a loan product you probably should avoid.
Secured and guarantor loans
If you're unemployed and can't demonstrate how you'll find the money to make your monthly repayments, a lender may require you to offer something of value as security against a loan.
This is usually in the form of your car or home, and these products are known as secured loans.
Using your own property as security on a loan can be risky because, if you're then unable to make your repayments, it can be seized and sold to pay off your debt.
Alternatively, if you have a close friend or relative who knows that you are able to make repayments on time, you may be able to apply for a guarantor loan.
A guarantor loan means that your friend or family member legally agrees they will repay the loan on your behalf if you are unable to do so.
If they then also fail to make the payments they could face the same kind of penalties as you would with a personal loan, so it's not an agreement to agree to lightly.
Alternatives to a loan
Before searching for loans for the unemployed, there are other options that you may want to consider.
Get plenty of advice
It's important to seek advice if you're unemployed and find yourself with debts that you don't feel able to pay off.
There are a number of organisations on the Financial Services Register that can help you manage your debt if you're out of work or on benefits.
PayPlan is one of the UK’s largest free debt advice providers and helps more than 100,000 people every year. They partner with providers like Dot Dot Loans to offer a free debt advice service.
You can also get free advice from Citizens Advice, who have plenty of information on debt and money which is available free to everyone.
MoneyHelper can arrange for you to speak with a debt advisor online or face-to-face. Their debt advisor locator tool will help you find an advisor for free.
StepChange offer free online debt advice and can advise you on managing your finances to avoid further debt.
Government support
If you receive benefits, you may be eligible for extra government support. You can discover online how to check the benefits you're entitled to.
If you have a bank account, speak to your bank
If you already have a good relationship with your bank and have a history of repaying credit on time, make contact and discuss what options are available to you.
Your bank may be willing to offer you a small loan if you've previously repaid any debt on time.
They could also offer you a temporary authorised overdraft, put in place until you manage to find work and a regular income.
It's likely that you'll be charged for an authorised overdraft, but it will probably be less than the interest on some loans - especially if you can repay it on time.
Could family and friends help if you're unemployed?
Asking your nearest and dearest for a loan is never going to be a comfortable conversation, but it's always worth considering.
You may be able to work out a deal with trusted family members or friends that involves paying back the debt, plus modest interest that still allows you to save money compared to a commercial loan product.
Make credit cards work for you
If you already use a credit card, it may be a more cost-effective way of borrowing money than taking out a loan when you're unemployed - especially if you're currently benefiting from a 0% interest deal.
You still need to meet your minimum monthly repayments, and if you miss any payments you may be subject to penalty charges and it could affect your credit score.
It is still possible to apply for a credit card with some providers if you're temporarily out of work. But without a steady income, you will be offered a much lower credit limit and potentially higher interest rates.
It's also worth remembering that if you're turned down for a number of credit card or loan applications in quick succession, it will be noted on your credit report and could ultimately affect your credit rating, so always think carefully before applying for credit.
Could we help?
Dot Dot Loans offer short-term loans for unemployed people and those who use benefits as their primary source of income. Interest rates are fixed on our loans and won't change whether you are unemployed or employed.
A short-term loan could help you, but remember loans aren’t right for everyone, and you should only borrow what you can afford to pay back. Visit our FAQs section to find out more about the eligibility criteria for a loan.
