After doing a credit check, most lenders will require that borrowers demonstrate a verifiable source of income. Some lenders might approve unemployed applicants that have another source of income such as alimony, unemployment compensation, or disability benefits.
Unemployed individuals might also qualify for a student loan or a loan borrowing against funds in their 401(k) or another retirement account.
Those who lack any other source of income and have a poor credit history will typically have very limited and less desirable options.
The Types of Loans You Can Get Without a Job
Student Loans
Student loans are usually obtainable regardless of whether the borrower is currently employed or not. Here, the lender assumes that the borrower is actively pursuing their education and the repayment process typically remains deferred until six months after graduation.
Depending on the type of student loan, interest on the loan may or may not accrue while you are in school.
Keep in mind that the funds from student loans are generally limited to use in paying for tuition, textbooks, room and board, and other educational expenses.
Credit Cards
A credit card is a revolving form of financing that an unemployed consumer might qualify for. However, in 2009 legislators passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act), which might make qualifying more challenging.
One provision of the Credit CARD Act requires that issuers of cards assess an applicant’s capability of repaying any debt incurred. In the absence of employment, credit card companies may also consider other forms of income that an applicant receives.
Some of the potential sources of income include trust fund receipts, distributions from retirement accounts, or income through Social Security.
Some Personal Loans
Unemployed individuals should expect more difficulty than those with active employment and regular income when seeking personal loans. The likelihood of approval varies based on the lender and other financial circumstances.
Many local banks, credit unions, online institutions, and other lenders offer personal loans. Borrowers typically receive the funds from a personal loan in an initial lump sum, may use the money for most purposes, and agree on a monthly payment schedule.
Typical borrower requirements include being age 18 or older with an active bank account. Variable requirements might include a minimum credit score or monthly income, some deposit or asset for securing the loan (collateral), a specified debt-to-income ratio, and others.
Business Loans
Small business owners might qualify for some type of business loan. A business’s income is used to qualify the loan, not income from a job.
For example, these include an SBA loan (which is guaranteed by the U.S. Small Business Administration), a small business loan from a traditional bank, or various online lenders that offer business loans.
Qualifying for a business loan will generally require documentation such as a bank statement confirming the revenue, credit, assets, or banking history of the business. Some small business owners with good personal credit might qualify for a loan that they use for business-related purposes.
401(k) Loans
Individuals who find themselves unemployed may typically withdraw funds from their 401(k) without penalties in the form of substantially equal periodic payments (SEPP) or according to the “hardship withdrawal” provisions—neither arrangement represents a true “loan.”
Some 401(k) plans also allow individuals to borrow in the more literal form of a loan. The Internal Revenue Service (IRS) reminds consumers that a 401(k) loan requires repayment of the loan in addition to any interest as outlined in terms of the agreement.
Failure in complying with these loan terms will result in the amount borrowed being treated as an early distribution, which is taxable income for that year, and an additional 10% tax penalty applies for those younger than 59 ½ years old.
How to Get a Loan Without a Job
You Need Good Credit
Lenders make decisions based largely on their assessment of risk after evaluating the potential borrower’s creditworthiness. Since past financial behavior is a strong indicator of future behavior, your credit history is a primary factor summarized in a three-digit credit score.
Credit Score Ranges
| Credit Score | Rating |
| 800 to 850 | Excellent |
| 740 to 799 | Very Good |
| 670 to 739 | Good / Average |
| 580 to 669 | Fair |
| 300 to 580 | Poor |
Source: FICO
As the table suggests, lenders rate borrowers according to their good or bad credit score. Therefore, taking steps toward improving your score is a smart move. One excellent resource for those seeking to build credit is CreditStrong, an innovative financial services provider.
Based in Texas, CreditStrong is a division of Austin Capital Bank, an FDIC-insured, independent community bank that helps consumers seeking a good credit score.
CreditStrong now offers Revolv, which establishes a revolving credit account that functions as a “virtual” credit card. Revolv funds are exclusively placed into a secure deposit account and you make monthly payments that are reported to the three major credit bureaus.
CreditStrong also offers an Instal account program, which establishes a credit account that functions similarly to an installment loan. Instal offers you the opportunity to make consistent, timely monthly payments over a loan term that is regularly reported to the credit bureaus.
Aside from establishing a good payment history, these credit-building options might also improve your credit mix, which involves responsibly managing two or more different types of credit accounts, which may also help your score.
Provide Other Sources of Income
Many lenders will approve a loan application that lacks employment income when other income sources exist. Keep in mind that lenders will generally require some verifiable form of documentation when assessing types of alternative income.
Some of these common income sources include alimony, government disability benefits, rental property income, or unemployment compensation.
Those who are married should consider whether their spouse might serve as a co-applicant—particularly if they have a steady source of income. The potential lender might also view your monthly income in relation to your monthly expenses—or debt-to-income ratio.
Your debt-to-income (DTI) ratio calculation involves adding up all monthly debt obligations and dividing it by your gross monthly income. Consider the following basic example:
Sum of monthly expenses (i.e., rent, utilities, debt payments): $1,000 / Monthly income: $3,000 = DTI .33 or 33%
Depending on the lender, your DTI should not exceed 30%. When DTI exceeds these levels, borrowers find themselves overextended and vulnerable when unexpected expenses arise.
Provide Collateral
In the realm of consumer lending, collateral refers to an asset offered by a debtor in obtaining a secured loan. An unsecured loan requires no collateral for loan approval such as an asset with value or a security deposit.
When entering a secured loan, the borrower is assuming the risk of losing their pledged collateral or asset if they fail in their repayment obligations. For example, with a car loan, the lender may repossess the vehicle if the borrower falls behind on the payments.
In the event of a default on a secured loan, the lender will take possession of the collateral asset based on a legal right or claim known as a lien.
If the collateral is insufficient for recouping the entire loss, the lender might take further legal action in an effort to collect the balance.
In many cases, only those with an above-average or higher credit history will qualify for unsecured loans. Conversely, lenders might have less stringent credit-based requirements when issuing secured loans, as the collateral may help offset possible losses.
Other types of loans involving collateral are car title loans, which use your vehicle as collateral, or pawn shop loans, which often use jewelry or electronics. These options are generally discouraged based on their short-term nature and exorbitant interest rates and fees.
Make Sure You Can Pay It Back
Proceed cautiously if seeking a loan when unemployed, particularly in the absence of other types of income. You must remain honest with yourself regarding your ability to repay a debt obligation, as you risk making your financial problems even worse.
Could you get a side gig, temporary position, or other means of income that would reduce the amount you must borrow? The combination of boosting your available income and pursuing a smaller loan might represent a viable solution.
Risks of Getting a Loan Without a Job
There Are Fewer Options Available
Pursuing a loan when unemployed is often challenging—particularly when you have poor credit and no other source of income. Part of what makes the process difficult is that you will likely have fewer credit options and often fewer desirable options.
In many cases, lenders will view those with minimal income as a credit risk and require forms of collateral and/or impose high-interest rates, fees, and other requirements.
Consider starting with a bank or another institution with whom you currently have a financial relationship. Local credit unions might offer highly competitive rates or have fewer rigid requirements for approval.
Do you have a friend or family member with good credit that may serve as a cosigner for a loan? This can help you qualify for loans that you may not have been eligible for by yourself.
You Might Damage Your Credit
Avoid borrowing more than you need during these turbulent financial times.
Those seeking credit during a period of unemployment are particularly susceptible in terms of damaging their credit. Late or missed payments on credit accounts have a swift and adverse effect on your credit score.
Bankruptcy and Seizure of Assets
Congress enacted federal bankruptcy laws as a legal means of providing relief for those with overwhelming debt. Bankruptcy is a way of discharging or releasing a debtor from all (or some portion) of their financial obligations.
Bankruptcy is a “last resort” with adverse consequences for those with unmanageable amounts of debt facing garnishment of their wages, utility disconnections at their home, repossession or seizure of funds in savings accounts, and aggressive debt collection activity.
In the years immediately following a bankruptcy, consumers generally will not qualify for most forms of credit, and evidence of bankruptcy remains on your credit report for 7 to 10 years.
Consumers should strive for a brighter financial future by proactively improving their credit. For example, developing a habit of paying all bills on time, avoiding excessive credit card debt, and considering the aforementioned credit-building tools.
In the meanwhile, create a “rainy day” savings fund as a means of protection before financial calamities occur. Relying on a cash advance or emergency loan whenever unexpected expenses arise or when you find yourself unemployed makes you vulnerable to major financial problems.
CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.
