While you don’t need a perfect credit score in order to get approved for a personal loan, the higher your credit score, the more likely you are to get loan terms that are more favorable for you, like no fees and a lower interest rate. (Have a bad credit score, Select rounded up a list of the best personal loans for bad credit.)
“Being unemployed does make the process more challenging. From the lender’s point of view, they want to lend money to an individual who they believe can pay the funds back,” she says. “So if you’re in a situation where you don’t have money coming in, it may be challenging for you to pay them back. If you have a history of paying down your credit cards and other past debts on time, that will lend itself to your favor.”
Also keep in mind that income doesn’t always necessarily come from a traditional paycheck. According to the IRS, other ways to show earned income can include gig economy work, money made from self-employment, benefits from a union strike, some disability benefits and nontaxable combat pay.
And of course, it’s very important to make sure you feel comfortable with the impact a loan repayment plan could have on your finances. Under some circumstances, you may not have any other choice but to take on more debt until you can improve your situation.
Take the time to consider how much of an impact the monthly loan payments will have on your overall budget. In some cases, the extra financial obligation is worth it to pay for an emergency, like a car repair so you can commute to and from new job interviews. In other cases, taking on additional debt may not be the best decision.
Can you get approved if you have inconsistent income?
If you are a freelancer, gig economy worker or a self-employed person, chances are you may have experienced (or continue to experience) periods of inconsistent income. Regardless, you can still get approved for a personal loan. It can help if you’re able to show that you’ve been in business for at least two years. Otherwise, the lender may ask you to get a co-signer for the loan.
What if a personal loan isn’t the right fit for me?
If a personal loan doesn’t sound like something that would be a fit for your circumstances, you still have other options for covering expenses. You may want to consider a personal line of credit instead. It’s similar to a loan, but it allows you to borrow money, repay the amount and then borrow again for a set period of time.
“A personal line of credit can be used when you aren’t quite sure how much money you’ll need but you know you’ll need a buffer,” Doe payday loans El Paso says. “If an unemployed person doesn’t know how long it will take them to start earning an income again, then a personal line of credit may be a better choice since they don’t know how much they will need.”
Also, keep in mind that personal lines of credit can accrue interest, and you will be expected to pay those charges as well.
While you might feel like your options are limited when you’re unemployed and in need of money, be on the lookout for predatory lenders, like payday loans. They carry very high interest rates even when you’re only borrowing a small amount of money.
Whenever you decide to borrow money, take the time to read the fine print and understand the repayment terms and conditions, so you’re not caught off guard by additional fees.
