Is a Personal Loan a Good Option When You’re Unemployed?
Borrowing while unemployed may seem far-fetched, but it’s not impossible. There are some situations where taking out emergency loans may become necessary. This article will break down typical loan requirements and show you important considerations if you’re thinking of taking out a loan while unemployed.
Assessing the Income of Unemployed Loan Applicants
There are two important factors that lenders will typically take into account when considering an applicant’s eligibility:
- Does the applicant have an income?
- Is the applicant’s credit score in good standing?
Income can include all of the following:
- Investment and dividend income
- Self-employed freelance income
- Social Security or unemployment benefits
- Court-issued funding like child support or alimony, although applicants do not have to disclose this information.
Keep in mind, however, that whatis considered income may vary by lender.
Lenders are primarily concerned with your ability to repay the loan. This means that unemployment income could make you eligible for loans of small amounts. The ultimate decision is up to the lender, and requirements and standards may vary.
Is it a good idea to take a loan while unemployed?
The decision to take out a loan while unemployed should be dictated by your financial circumstances and prospects of future employment. Assessing these factors should be the first step before applying for a loan.
Can you afford to pay the loan back on time? It’s best to assume that your employment circumstances won’t change unless a solid opportunity exists. That may not change the need for an emergency loan, but it will help you realistically assess your ability to manage it. If the answer is yes, start looking for a lender to approve your loan request.
Taking out a personal loan to prepare for a new job could also be a good idea. You may need the extra funds for things like commuting expenses, new clothes, and childcare. Make sure you know exactly when you’ll receive your next paycheck and whether you’ll need to pay your loan before then so that you can plan accordingly. Timing is critical. It’s easy to justify borrowing money when an employment opportunity depends on it. Not being able to pay that money back could lead to problems down the road.
The Bottom Line
A personal loan can be a good option in some cases when you’re unemployed, but there are some things you need to consider first. If you’re in receipt of income, or you know when your next paycheck is coming in and it will be enough to cover the cost of the loan plus interest, then it could make sense to go ahead and apply. Just make sure you’ll be able to pay back the money on time.
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