Can I take out a personal loan without a job?

Will lenders consider me if I’m unemployed?

Lenders will take a number of factors into consideration when assessing your personal loan application (not just whether you are employed). They each use their own criteria, but typically they will look at:

• If you have an alternative source of income - such as a pension, investments or benefits, for example. Lenders usually want to see evidence of this.
• Your payment history - they will want proof that you are a responsible borrower who has maintained repayments on time, every time. 
• Your credit score - the higher your score, the more likely you will be able to access the best deals with the lowest interest rates
• How much you want to borrow - the less you want to borrow, the less risky you will seem to lenders. If you are unemployed, lenders might be wary to lend you a large loan in case you cannot afford to repay it 

What you might need a personal loan for

There are numerous reasons you may take out a personal loan, they are as follows:

• Home improvements
• Debt consolidation
• To fund a large purchase, such as a new car
• Pay for educational fees 

Can I get a personal loan without proof of income?

Proof of income is a key component of being able to obtain finance, and you will struggle to be offered a personal loan without it. This is because lenders need to feel reassured that you can afford to repay the money you are owed within the terms of the agreement.

Whilst a salary paid into your bank account is the most common proof of income, there are other income streams which may be considered.

This varies from lender to lender. These include the following:

• Self-employed earnings
• Pension payments
• Benefits
• Child support payments

If you are unable to provide any proof of income then your choices are limited. One option is applying for a guarantor loan. This is when someone you know agrees to take the responsibility of the debt on your behalf, so it’s their credit history that’s assessed. They will be liable for the debt if you fail to meet the terms, so it’s important all parties involved are mindful of this when securing finance in their name.

You may also be offered a loan from a credit union. These are organisations that offer financial services to their members, and the interest rates are usually quite low. Membership for a credit union tends to centre around a specific community, which can be on occupation, where you live and other factors. You can find out what credit unions you are eligible for here.

Things to consider

Whether your loan application is accepted depends on your circumstances and the lender’s criteria. You might want to improve your credit score to increase your chances of being accepted with better interest rates.

It’s also worth remembering not to make too many credit applications within a short space of time. This could make you seem desperate for credit, which can put some lenders off. And make sure you use eligibility checkers to discover if you’ll be accepted before you apply. That way, only a soft check will be performed, which won’t affect your credit score.

Let’s take a look at some of the pros and cons of getting a personal loan when unemployed:

Pros:

• A fixed-rate loan helps you to budget, as the monthly amount will stay the same
• Flexible terms - you can decide how much you want to borrow over what term 
• You can spend a loan on what you like (apart from anything illegal, or gambling)

Cons:

• If you don’t have a job, you will be seen as riskier to lend to, so the terms of your loan won’t be as good, and the interest rates will usually be higher
• You could overstretch your finances
• If you can’t afford the repayments, you could damage your credit score

How to apply for a personal loan when unemployed

1. Before you apply, work out how much you need to borrow, for how long, and how much you can afford to pay back each month. It’s important this covers the full duration of the loan
2. Check your credit reports before applying. Any mistakes may be harming your score and consequently making you less likely to be accepted or get a good deal
3. Research a few different lenders for your eligibility, running soft checks beforehand (so as not to damage your credit score). You can utilise a few different price comparison websites and check out our loan calculator
4. Once you’ve found the best deal you can afford and are likely to get, follow the full application process with that lender

Are there any other alternatives?

As an alternative to a personal loan, you could consider applying for a secured loan (otherwise known as a homeowner loan). The fact that you have to use an asset like your home as security, means you are less risky in the eyes of a lender. So they may be able to offer you a larger amount on better terms. But if you don’t maintain your repayments, you risk losing your homes so it’s not something to rush into lightly.

Or you could consider a credit card if you have no income. However, the range of cards available to you will be limited. So make sure you read our guide on credit cards if you’re unemployed to find the best option for you.

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Intelligent Lending Ltd is a credit broker working with a panel of lenders.

Disclaimer: All information and links are correct at the time of publishing.