How To Get a Personal Loan if You’re Unemployed

Losing your job is stressful enough, but struggling to make ends meet while looking for your next role is its own challenge. Even with an emergency fund, you may need a quick influx of cash to tide you over until you can rejoin the ranks of the employed.

Luckily, a personal loan is an option if you're unemployed. You may have a harder time qualifying, however, and you’ll need a way to make your monthly payments. We'll provide advice on how to improve your chances of getting a personal loan while unemployed, plus a look at alternative ways to get the cash you need.

10 steps for getting a personal loan if you're unemployed

The process of getting a personal loan isn't too different if you're unemployed, but it does include a few extra steps.

1. Calculate your loan amount

First, figure out how much money you need to borrow by calculating your essential living expenses. (You'll likely want to cut out most discretionary spending until you find your next role.)

Use your bank and credit card statements to figure out how much you need to get by each month. Then, subtract any money you’re bringing in from the total. If you're receiving unemployment benefits, for example, subtract that amount from your essential monthly expenses. Then multiply the amount you’re short each month by the number of months you anticipate being unemployed. 

Knowing how much you need to borrow is crucial to avoid overpaying for a loan. The more you borrow, the more you have to repay, plus interest and fees. 

Learn More: How to Create a Budget: A Step-By-Step Guide

2. Review your credit score and credit report

Knowing where your credit stands can help you identify which loans to apply for, as credit score requirements vary by lender. Plus, it can help you gauge your rate. Some banks, credit unions, and credit bureaus offer your scores for free. You can also use Credible's free credit monitoring tool.

If your score is very low, especially in the below-580 FICO range, you may want to consider applying with a cosigner or pursuing other avenues for getting cash.

You should also review your credit report for any errors that may be hurting your score. Access your credit reports for free at AnnualCreditReport.com.

3. Assess your ability to make on-time payments

You don't want to miss monthly loan payments, as doing so can hurt your credit. Before you take out a loan, figure out how you'll make your monthly payments. The first step is to get a sense of the monthly cost of the loan. Refer to recent closed loans data from the Credible personal loan marketplace, below, to see what interest rate you might get approved for based on your credit score.

Current personal loan interest rates by credit score

Find where your credit score falls in the table above and refer to the rates for three- and five-year loans. Then, use a personal loan calculator to estimate your monthly payment for different repayment terms. If the monthly payment is high, consider any alternative income and savings you're willing to part with to better afford the payment or reduce the amount you need.

Keep in mind, this is a very rough estimate and the rate you might be approved for could be higher. Your application will take additional factors (like your employment situation) into account.

4. Research and compare lenders

Based on what you know about your borrowing needs, ability to repay, and credit score, research potential lenders. Compare them by:

• APR: APR (annual percentage rate) measures the cost of borrowing on an annual basis by accounting for the interest rate and any upfront lender fees. Most lenders have a wide range of APRs that typically range from 6.49% to 35.99%. The rate you’ll be approved for depends on your credit score, income, and other factors.
• Fees: Upfront fees, such as origination fees, are factored into the APR, but lenders may also charge late fees or non-sufficient funds (NSF) fees.
• Funding time: Although some lenders offer funding as soon as the same day you're approved, the typical wait time could range from the next business day to several business days.
• Eligibility requirements: Many lenders require a minimum credit score or a minimum income to qualify. Fortunately for unemployed applicants, income requirements may be low in some cases and lenders may consider other forms of income besides a regular salary. (See “Alternative income sources” below.)
• Customer service: Look at customer reviews from sources like Trustpilot, Google Reviews, and the Better Business Bureau.

5. Prequalify with multiple lenders

Once you've narrowed down your list of potential lenders, prequalify where possible. Prequalifying allows you to get a rate estimate without a hard credit pull, though it's not a rate guarantee. When you formally apply for a loan, lenders typically run a hard credit check that can temporarily lower your credit score.

6. Gather information and documentation

When you apply for a personal loan, the lender will require certain information from you. This typically includes your Social Security number, proof of address, proof of income, and recent pay stubs or tax returns — the last two might give the lender insight about your earning potential.

7. Consider recruiting a cosigner or co-borrower

If your credit isn't great, consider applying for a loan with a cosigner or a joint personal loan with a co-borrower. If your cosigner or co-borrower has better credit, you may be able to qualify for better loan terms. While a cosigner is responsible for paying your loan if you default, they don't have access to the funds. On the other hand, you and a co-borrower share access to the loan funds and responsibility for repayment.

8. Consider a secured loan

Although most personal loans are unsecured, some lenders offer secured loans that require you to pledge a valuable asset, like a car, the fixtures in your home, or a bank account. Offering collateral can improve your chances of qualifying or receiving a lower rate since the lender assumes less risk if your assets are involved. The downside is that if you default on the loan, the lender can seize the collateral. 

9. Submit your application

After choosing a lender based on your research and prequalification estimates, apply for the loan. These days, many lenders provide online applications. Fill out your information, upload any required documentation, and wait for approval.

10. Sign and return the loan agreement

After receiving a loan offer, read the terms carefully. If you're happy with the loan terms and clear on the details, sign the loan agreement plus any other paperwork and return it to the lender. Then wait for your funds to arrive.

What factors do lenders consider for approval?

There are several factors lenders consider in addition to your employment status when deciding whether or not to approve your loan application. These may include:

Alternative income sources

Being unemployed doesn't mean you don't earn income in other ways, and personal loan lenders may consider these alternative income sources when reviewing your application.

What else could be considered income?

Lenders differ in what they consider income, but the following alternative income sources may be acceptable on some loan applications:

• Social Security income
• Certain disability payments
• Unemployment benefits
• Alimony or child support
• Royalties
• Pension or retirement distributions
• Some life insurance proceeds
• Recurring interest from investments, rental income, or savings 
• An accepted job offer

When applying for a loan, check with the lender to find out what types of income it considers when reviewing your application.

Credit score and history

Lenders typically check your credit score and credit history. This information tells them how reliably you've repaid your debt in the past and gives them an idea of how likely you are to repay a loan. Generally, a higher credit score makes it easier to qualify for a personal loan with a lower interest rate.

Debt-to-income ratio (DTI) 

Your debt-to-income ratio (DTI) is the amount of debt you have compared to your income. Lenders like to see a smaller DTI, generally below 36% for personal loans. If you're unemployed and have existing debt, you may have a higher DTI. 

Employment history

Even if you're not currently employed, lenders may care about your previous employment. This can give them an idea of your earning potential and how much income you might earn when you get a new job. 

Cosigner or co-borrower

In many cases, cosigners and co-borrowers (also called co-applicants) can improve your loan application. If your co-applicant has a higher credit score, longer credit history, or a higher income, you may be more likely to qualify for a loan.

Requested loan amount

Smaller loans present less risk to lenders. So in general, the smaller the loan amount you request, the more likely you are to qualify.

Where to apply for a personal loan if you're unemployed

Banks

Banks may be more willing to lend to existing customers, which may work to your advantage while unemployed. You may even qualify for a relationship discount. 

Malik S. Lee, a certified financial planner and managing principal at Felton & Peel Wealth Management, suggests looking into community banks instead of larger banks. “Working with the major banks regarding personal loans is pretty straightforward when it comes to getting approved,” he says. “In contrast, some credit unions or community banks may have more favorable guidelines in your time of need.”

Credit unions

If you're a member of a credit union, you may find the best interest rates there. Credit unions are nonprofit organizations, and they often pass on profits to their members in the form of interest rate savings. If you're not a credit union member, it's worth looking into credit unions you could join to take advantage of potentially low rates and flexible eligibility requirements.

Online lenders

Online lenders offer an all-digital experience and, in general, less strict eligibility requirements than banks. Some lenders may require employment in order to qualify, but not all. You can check out lenders' websites for eligibility criteria, and you can often prequalify in minutes. 

Alternatives to personal loans

If you're struggling to get a personal loan or want to explore other options, consider the following alternatives: 

• Home equity loan: If you own your home and have more than 20% equity, you may be able to tap it with a home equity loan (some lenders may even let you borrow with less than 20%). However, you’ll still need to show the lender you have sufficient resources to repay the loan. And if you default on the loan, the lender can foreclose on your house.
• Home equity line of credit (HELOC): A HELOC is similar to a home equity loan, but instead of borrowing a lump sum, you take out a line of credit against your home equity. And while home equity loans are often fixed-rate loans, HELOCs typically have variable rates. As with a home equity loan, a default could put you at risk of foreclosure. 
• 0% APR credit card: Credit cards typically have higher interest rates compared to personal loans, but a card with a 0% intro rate can be an exception. “Credit cards with favorable introductory offers may also be good options to cover expenses now with little to no interest,” says Tyler West, MPA, a financial guide with Your Money Line. Just make sure you have a “solid debt repayment plan once you have regained stable employment.” Also, keep in mind that the card's regular APR takes effect after the introductory 0% APR offer expires.
• Loan from friends or family: Sometimes, the best option may be found outside the field of commercial lenders. If you have a friend or family member who's willing and able to offer you a loan, you can skip the formal borrowing process. You should both sign a written agreement to make sure you're clear on the terms.