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Although it’s possible to get a personal loan without a job, it’s not a wise decision because you can put your financial health at risk if you can’t afford the loan. Plus, it might be difficult to qualify, too. That’s because a stable income history is typically one of the most important personal loan requirements. However, some lenders will let you take out a loan with no income or allow you to use non-employment income to qualify.
Before you take a loan out, learn how lenders qualify an applicant and consider the risks that come along with getting a loan without a job.
Should You Get a Loan Without a Job?
If you don’t have a job or an alternate source of income and can’t afford to take out a personal loan, it’s best to avoid taking on additional debt. However, if you have consistent non-employment income, such as Social Security or retirement funds, and can afford to take on additional debt, doing so can get you the financing you need.
Can I Get a Loan Without a Job?
You can apply for and receive a personal loan if you don’t have a job. However, getting approved may be difficult without an income and you could jeopardize your finances if you can’t manage your payments.
In some cases, lenders that offer unemployment emergency loans have low income requirements or will consider alternative sources of income, such as child support or social security.
How Lenders Determine If You Qualify for a Loan
To determine whether you qualify for a personal loan, lenders consider several factors to assess your credit risk and whether you can repay the loan. Some of the most common factors include your income, debt-to-income (DTI) ratio, credit history and credit score. After reviewing these factors, most lenders decide whether to approve or deny your loan application.
If the lender approves your application for a personal loan, it will determine what interest rate and possible fees to charge you based on these four factors.
1. Income
Before issuing you a loan, most lenders require you to provide proof of your income with past tax returns, bank statements and pay stubs. A stable income shows a lender that you have the means to repay your loan. Also, based on the lender’s income and credit requirements, this will determine the amount of money you qualify to borrow. A guaranteed loan, however, doesn’t require a credit check.
If you don’t have a job but have other income sources, you might be able to use those to qualify for the loan. Lenders might accept income from the following sources:
- Interest and dividends
- Social Security
- Long-term disability
- Alimony or child support
- Trust fund
- Rental property
- Retirement or pension
In the rare event that you’re able to get a personal loan with no income verification, it’s still not a good idea to take one out if you can’t afford to repay it. Getting a loan with no income can put you at risk of defaulting on the loan and damaging your credit profile if you can’t make your monthly payments consistently. Certain lenders, however, allow you to take out a personal loan against your income tax return if you don’t have income.
2. Debt-to-income Ratio
Your debt-to-income (DTI) ratio measures how your monthly debt compares with your gross income. The lender uses this measurement to determine whether you can take on additional debt. To calculate this ratio, divide your monthly income by your gross income. For example, if your monthly debt service is $2,000 and your gross income is $2,500, your DTI ratio would be 80% ($2,000 / $2,500).
The higher your DTI ratio is, the riskier you are as a borrower. Although lenders have different minimum DTI requirements, a ratio below 36% is typically preferred. Some lenders, however, will approve exceptional applicants with DTI’s as high as 50%.
3. Credit History
When reviewing your loan application, lenders will check your credit history to see how you manage past and current debt obligations. If you have a lot of missed or late payments, lenders will take this as a red flag. Additionally, if you haven’t established your credit history, lenders may hesitate to approve you for a loan.
4. Credit Score
Lenders review your credit score to determine how risky of a borrower you are. One of the most popular models lenders use is the FICO credit scoring model. This model ranges from 300 to 850. Borrowers who have good to excellent credit scores (at least 670) usually score the best interest rates. FICO calculates your credit score for a personal loan based on your payment history, amount of debt owed, credit mix, length of credit history and new credit accounts.
3 Risks of Getting a Loan While Unemployed
Although you might be able to get a loan while unemployed, be mindful of the risks that may come with it, including:
- Damaging your credit score. Failing to repay or defaulting on a personal loan can cause serious damage to your credit score. This might prevent you from qualifying for a mortgage or other loan in the future and increase your costs of borrowing money.
- Qualifying for a lower loan amount. While you’re unemployed, your lack of income will likely cause you to qualify for a lower amount of money than you’d be eligible for otherwise, if you qualify at all.
- Higher interest rates and fees. To compensate for letting a high-risk applicant borrow money, the lender will likely charge higher interest rates and fees. Paying a higher interest rate increases your cost of borrowing. On top of that, paying a higher origination fee because of your lack of income can reduce the amount of your loan, since they are deducted from the loan amount.
- Potential scams. Fraudulent loan offers will request your sensitive personal information without offering you a loan. These personal loan scams can be avoided if you look for red flags like upfront fees or collateral requirements.
Unemployed Loan Alternatives
If you decide that taking out a personal loan isn’t the right choice for you, consider the following alternative options.
Family Loans
One way to get a loan without proof of income is by taking out a familyloan, which is a loan from a family member that may or may not involve a contract. Before you borrow the money, you should discuss the terms and conditions of the loan with the family member loaning you the money. If you draw up a formal contract, make sure it includes how the loan will be repaid, a repayment schedule and any interest charges.
Secured Loans
Loans backed by collateral, or secured loans, can be easier to qualify for since a lender can take possession of the collateral if you fail to repay the loan. Since these loan are collateralized, your interest rate is typically lower than an unsecured personal loan. Before accepting one of these loans, be sure you can make the loan payments because if you default, the lender can take possession of your asset backing the loan.
Home Equity Loans or HELOCs
If you have enough home equity, you might be able to take out a home equity loan or home equity line of credit (HELOC). Home equity loans are similar to a personal loans in that the lender gives you a lump sum payment and you repay the loan in fixed installments with a fixed interest rate. However, a HELOC operates like a credit card—you borrow on an as-needed basis and only pay interest on the money you borrow.
With both of these options, the lender can foreclose on your home if you fail to repay so be sure you can afford the payments before taking taking out this type of loan.
Co-signed Loans
Another way to meet the income requirements for a loan is to add a co-signer, or someone who agrees to be responsible for repaying the loan if you miss payments or default on it. If you have poor credit history or no income, a co-signer with good to excellent credit (at least 670 and solid income) can help you qualify for a loan.
Before you get someone to co-sign for you, make sure you can repay the debt. Failing to repay the loan can damage both you and your co-signer’s credit score.
