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Single mothers looking for a loan may have a harder time getting approved, but it mostly depends on their credit profile and income situation. Banks don’t factor in children when determining eligibility. They look at other factors such as your credit score and debt-to-income ratio. So while there aren’t any loans made specifically for single mothers, this certainly doesn’t mean getting a loan as a single mom is impossible.
Pros and Cons of Personal Loans for Single Mothers
Pros of Personal Loans for Single Mothers
Cons of Personal Loans for Single Mothers
Funds can be used for a variety of purposes
Repayment term can be short (6 months to 5 years)
May qualify to borrow a large amount of money
Monthly payments are higher than credit card installments
Borrowers can choose to take out unsecured personal loans, so no need to use collateral
Origination fee can drive up the total cost of the loan
Can be used to consolidate debt
Typical Personal Loan Terms for Single Mothers
The truth is, “typical loan terms” do not exist because each and every borrower is unique and this applies to single mothers. The factors listed below can influence a loan’s terms:
Credit score
Income
Debt-to-income
Loan amount
Repayment period
Collateral
Interest type
Employment history
Lender fees
Benchmark interest rates
Therefore, while the principal amount may be the same between borrowers, the amount each borrower pays may vary by a significant margin.
Tips for Finding a Personal Loan
Following these advice points will help.
Compare Requirements
These requirements can be anything from a minimum income to a minimum credit score.(And bear in mind that some lenders only offer bad credit loans.)
Credit Score
To get the best loan terms for you, you’ll want to have a strong credit score. If you don’t know what your score is, your bank may give you free updates each month. If your score is lower than you think it should be, be sure to check out your credit report at www.annualcreditreport.com.
Debt-to-Income Ratio
Your debt-to-income ratio is all of your monthly recurring debt payments divided by your gross income (the money you make before taxes and insurance are taken out). A common maximum DTI that lenders stop lending at is 43%.
Collateral
Collateral is only used for secured loans and is what is used to actually “secure” the loan. What can be used as collateral? Cars and homes are the most accepted forms, but if you own other assets, it’s possible a lender may be willing to work with you. While an unsecured loan may sound like a better deal because you’re not at risk of losing anything, unsecured loans come with higher interest rates.
Cosigner
Personal loans for single moms with bad credit may be easier if you have a cosigner. The drawback, however, is that both of your credit scores will take a hit if you miss a payment.
Employment
Lenders like to see consistent employment, with little to no gaps in employment history. If you only recently obtained employment after a lengthy absence, lenders may hesitate to work with you.
Compare Terms
All loans are not created equal. When choosing loans, compare the terms of each. This means you should evaluate:
Fees
Repayment period
Interest rate
Soft Credit Pulls
A soft credit pull does not hurt your credit score, hence the term “soft.” While loan shopping, companies that initially do soft credit pulls won’t damage your credit profile, so it’s safe to run some numbers with them to see if you’re interested in their potential offer.
Fees
Each lender is different both in the types of fees they charge and the amount they charge. If a loan has the lowest interest rate, it’s possible for it to still be the most expensive option when you compare origination and application fees. While comparing, also look at:
Prepayment penalty
Returned check fee
Late payment fee
Returned check fee
Repayment Term
The longer the repayment period you have, the less amount of money you’ll pay each month. However, you’ll pay more in interest as time goes by. Shorter loan terms mean more aggressive payments, but you’ll pay less in interest overall. However, there are some quick personal loans on the market that, even though they have short repayment periods, still come with higher than average interest rates.
Compare Interest Rates and Total Cost
Comparing personal loan rates is essential if you want to save the most amount of money. Once you know the interest rate and other fees, you’ll be able to determine the total cost of the loan. Take this information to an online loan calculator to determine how much it will cost you to borrow from each lender. Note: Borrowers may receive lower interest rates with a credit card.
Consider Total Monthly Payment Amount
While you may want to save the most money, if a loan payment takes up too much of your monthly income, you may want to consider another lender offering a longer repayment period even if they’ll charge you more in interest.
Applying for a Personal Loan
Gather Documentation
You’ll need the following documents when applying for a personal loan:
Government issued ID
Bank statements
Tax returns
Pay stubs
Proof of address
What to Do if You Are Approved
If you’re approved for a personal loan, you’ll need to sign any necessary loan agreements and documentation. Many lenders offer digital signing services so you don’t even need to print anything.
What to Do if You Are Not Approved
If you’re not approved, it’s not over. Consider finding another lender that has more flexible requirements. However, in doing so, you may pay more in interest.
Paying Back a Personal Loan
Your monthly payments will begin shortly after taking out the loan. If you sign up for auto-payments, your interest rate may be slightly lowered.
Personal Loan Alternatives for Single Mothers
Home Loans
Personal loans vs. mortgages? Mortgages are only used to purchase homes, but if that’s what you’re looking for, there are a few types of mortgages on the market that have lower credit score and down-payment requirements:
FHA Loan: A 3.5% down-payment option for borrowers with low to average credit scores.
VA Loan: A no down-payment mortgage for active and retired military, as well as their spouses.
USDA Loan: A no down-payment mortgage option for homebuyers buying in rural areas.
Grants and Non-Profit Aid
A grant is money that does not have to be repaid. If you would struggle to make monthly payments after receiving a loan, then you should strongly consider alternative ways to receive funding.
Educational Aid
There are many educational grants on the market specifically designed for low-income women. Look for grants made for specific educational tracks that interest you. This way you may have less competition and can hopefully explore new career opportunities.
Childcare Programs
The U.S. government offers childcare aid to help single mothers. Funds can be used for things such as childcare, schooling, and extracurricular activities.
TANF
For short-term assistance, consider applying for Temporary Assistance for Needy Families, or TANF, until you’re able to get your feet back on the ground. TANF is not a long term solution, but can help if your current financial situation is unusual.
DCA
Diversion cash assistance can be used for emergencies and is also offered through the U.S. government. If you receive funds through DCA, however, you cannot also receive TANF aid.
Emergency Financial Assistance
What are you struggling to pay? If you’re having trouble paying rent, mortgage, or utilities, search for assistance that’s aimed at what you specifically need help with. Many cities and states have programs in place. You can also search for help at the national level, too.
Hardship Grants
The U.S. government offers a variety of hardship grants beyond what we have already discussed. If you’re facing consistent financial hardship, explore the numerous types of aid the federal government offers.
The Takeaway
While loans specifically made for single moms don’t exist, there are many types of personal loans out there and available. Just be sure to shop around and compare rates to ensure you’re getting the best deal.
Frequently Asked Questions
How can single moms get loans?
Is there any financial aid for single mothers?
Can you get a personal loan while unemployed?
Photo credit: iStock/DisobeyArt
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About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
