Do unemployed people have any option for low-risk loans?

If you have been laid off or are between jobs, you will have to carefully analyse whether it is an ideal time to borrow money. Unemployment is temporary, though. It can extend for more than an expected period. You will likely find it harder to meet your monthly expenses despite stretching your savings. You may need to borrow money, but the question is, the door-to-door loans for the unemployed are expensive.

It is not possible for everyone to qualify for these loans at affordable interest rates. Secondly, you do not have a steady source of income, so a lender may not sign off on your application. To qualify for unemployed loans, you will have to prove your eligibility criteria.

You can get money at affordable interest rates even if you are low on income. Before you know what low-risk loan options are available for the unemployed, you should know other facts about these loans as well.

Can you get a loan when you are out of work?

Getting a loan when you are between jobs is extremely tough. High street lenders will straightaway turn you down. Lenders will have concern that you do not have enough income to repay the debt. However, it does not hint that you cannot get a loan when you are out of work.

There are a couple of lenders that can entertain your application after perusing your financial statement. They do not expect you to be a full-time employee or a self-employed person but want you to have an income source. You can qualify for these loans if you are receiving a pension or benefits or have a rental income source.

A lender will determine the size of the loan based on your income. These loans are emergency loans, and hence the repayment length is not more than a month. Depending on the policy, some lenders accept payments in weekly instalments, while others accept full and final payments in a lump sum.

What does it mean if you have a bad credit score?

You may have a poor credit rating when you need an unemployed loan. A bad credit rating can reduce your chances of borrowing money, especially when you are out of work. If any lender approves your application, you will end up paying higher interest. If you have a bad credit score, you will likely have a problem qualifying for the loan at affordable interest rates. Therefore, you should follow the following steps:

• It is vital to peruse your credit score from time to time. Do not mind paying nominal fees to get a copy of your credit file, as it will help avoid facing shocking surprises. Your credit report may have some errors that can affect your credit rating. You can become the victim of identity theft. Make sure you periodically check your credit report and get these errors removed. Note that credit reference agencies can take at least a month to rectify these errors. Therefore make sure you have fixed these errors by the time you need money.

• Add your name to the electoral register as this gives a chance for a lender to check your personal details. Your application will be straightaway turned down if you are not registered with the electoral register.

• Avoid having an outstanding debt when applying for an unemployed loan.

• Make sure you do not apply to multiple lenders within a very short time because each time, they will make a hard credit check, and your credit score will plummet.

• Consider taking out a credit builder loan to strengthen your credit score.

Why are unemployed loans expensive?

No paperwork loans for the unemployed are undoubtedly expensive. This is because a lack of a steady income source increases the risk of a lender. They will always have a concern about your repaying capacity. If you borrow money despite a bad credit rating, it shows that you are not financially responsible.

Borrowing money is not considered good at all as it is interpreted as you do not manage your money smartly. Although a couple of lenders approve the application for unemployed loans, they will doubt that you can take a longer time to land a new job, and your benefits may get exhausted soon. In order to mitigate their risk, they charge a higher interest rate.

How can you get a low-risk unemployed loan?

Now the question is how you can get the unemployed loans at affordable interest rates. There are a couple of suggestions mentioned above those state ways of getting these loans at a lower interest rate, but sometimes these loans are still risky. It is intrinsic to know how much a loan will cost you. Since interest rates are still high, you can find them riskier. If you fail to pay down the debt on time, you will end up in a debt trap. Here is how you can get a low-risk unemployed loan.

• Put security

Make these loans secured in order to avail yourself of lower interest rates. A lower interest rate means smaller payments, and it will be naturally easier for you to pay off the debt. Even if you are to pay it back in a lump sum, it will not put much burden on your debt.

Once you make the final settlement, you will get the collateral back. It is up to a lender which security they would like you to put down. Collateral whittles down the risk of a lender as they can use it when you make a default. Of course, when the risk is let up, more competitive interest rates will be imposed. The value of the collateral will certainly be higher than the size of the loan.

• Guarantor loans

You may need to arrange a guarantor with a good credit history who will be liable to pay down the debt when you fall behind on payments. The primary responsibility is yours to settle outstanding dues. In fact, a lender will chase you to settle an overdue payment as soon as possible.

The last resort is the guarantor, who will be called upon to pay off the debt. It can be quite challenging to arrange a guarantor because if they settle the debt on your behalf, it will also harm their credit points.

• Apply with a co-applicant

Undoubtedly, it is not that easy to arrange a guarantor. No one will be ready to risk their credit score to help you. In such circumstances, you should apply with a co-applicant. It can be anyone; your spouse or your friend. They must have a good credit score so as to reduce the risk of a lender. Both of you will be responsible for making the debt payment.

Take message home

Unemployed loans can be expensive, no doubt, because the risk of default is very high. However, you can still avail of them at competitive interest rates. You will have to prove to a lender that your credit profile is not very risky. Try to have a better credit score.

Avoid multiple credit inquiries in a short period of time. Apply with a guarantor or arrange collateral. You can also consider applying for the loan with a co-applicant.

Description: Yes, unemployed people have options of getting low-risk loans, but you will have to improve your credit profile.