Is It Possible to Get a Personal Loan While Unemployed?

Sheryl Nance-Nash

Updated December 20, 2021

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Periods of unemployment can cause uncertainty of how you will pay your bills and how many months it might take to find another job. You may be looking for resources to keep you afloat. Family and friends may not be in a position to help, and your savings may not tide you over for long.You’ve probably heard about personal loans, but can you get one when you’re not currently working?

What To Know About Personal Loans for Unemployed People and Students

Whether you’re unemployed or a student, there may be reasons to apply for a personal loan when you need cash. You may have assumed that there weren’t, but that may not necessarily be true. It may not be as easy to get a personal loan as when you’re employed and have had a lengthy credit history, but a personal loan is an option for.

Personal Loan Basics: What Are Personal Loans?

A personal loan can be used to make a big purchase or consolidate high-interest debts. One thing that makes them attractive is that personal loan interest rates are often lower than those on credit cards, which means they can be ideal for consolidating multiple credit card debts into a single, lower-cost monthly payment.With a personal loan, you borrow a lump sum of money that can be used for various reasons, such as to help pay for college, medical bills, major home repairs, or to consolidate debt, among others.Unlike the variable-rate interest on a credit card, a personal loan typically has a fixed interest rate, so you know how much you will pay monthly over a designated time period.Personal loans are often unsecured, meaning you don’t have to put up collateral to guarantee the loan and is typically backed solely by the credit standing of the borrower or cosigner. But some lenders offer secured personal loans, which do require collateral. Not needing to provide collateral may be appealing, but secured loans may have more favorable interest rates than their unsecured counterparts.

Can You Apply for a Personal Loan While Unemployed?

Unemployment isn’t necessarily a deal breaker for personal loan approval. If you have other sources of income like alimony, child support, Social Security payments, pensions or annuities, or certain disability payments, for example, you may be able to get a personal loan.

Can You Apply for a Personal Loan as a Student?

College students can apply for a personal loan, but lack of a credit history — not many students have a deep credit history — may present a hurdle to approval. Lenders may see you as a risk because there is not a long record of how you have met your financial obligations in the past.Something loan applicants without a robust credit history may consider is asking someone with excellent credit to help them get a loan by cosigning with them.Credit unions sometimes have lower interest rates than other types of lenders for applicants with average or even bad credit and typically are willing to take into account other factors than just their credit. Some private lenders may lend to college students based on post-grad earning potential.

Personal Loan Options When Unemployed

While you may get a personal loan when you’re unemployed, there could be limitations.

The lender may require you to have a cosigner.
You may be approved for less money than you asked for.
The term of the loan may be shorter, for instance, 24 months instead of 36 months, because a lender may see this as less of a risk.
You may be approved at a higher interest rate than you’d like to have.

Taking Out a Personal Loan While Unemployed or as a Student

Whether you’re a college student or unemployed, there are some things to keep in mind when applying for a personal loan.

Factors That Lenders Use When Reviewing Your Loan Application

Every lender has their own approval process that they use to evaluate the likelihood that an applicant will repay them. What will be they looking for? Your credit score and history are typically at the top of the list. If your credit score is poor, you may consider improving it before you apply for a personal loan. A lower score might mean a higher interest rate, which can cost significantly more over the life of the loan. There are, however, some lenders who offer personal loans with no credit check.Your annual income will also be a consideration in a lender’s approval process. However, your debt-to-income (DTI) ratio may present a more complete picture of your repayment ability than your income alone, and is typically also a factor in the lender’s approval process. Lenders generally look for a DTI under 35%, but the ideal is 28% or less. Your DTI is calculated by dividing your total monthly debt payments by your gross monthly income.

Someone with a monthly income of $5,000 might look like a good risk based on income alone, but if their monthly debt payments equal $2,000, their DTI would be 40% — higher than lenders typically like to see.
Someone with a lower monthly income, $3,000 for example, and minimal monthly debt payments, $500 for example, would have a DTI of about 17%, and may present as less of a risk to a lender.

Benefits and Risks of Taking Out a Loan While Unemployed

Like most things in life, there are pros and cons of borrowing money when you’re unemployed. The bottom line is that you can access money to help you pay your bills during a time of no income, but you will eventually have to repay it.

Benefits of Taking Out a Loan While Unemployed

There can be several benefits to getting a personal loan when you’re out of work. You can use the money you receive pretty much as you need to, which is no small matter when your income stream has run dry.The interest rate on a personal loan may be less than the 16% that’s typical on credit cards, as of December 2021. Using a personal loan for things like a major relocation or unexpected medical expenses could work out to be more favorable than turning to credit card debt.You can also choose to use the loan to consolidate multiple debts. A debt consolidation loan can help you save money if you’re approved for a lower interest rate than you’re paying on your credit cards or other bills. It may also simplify your budget by having just one one monthly debt payment instead of several.

Risks of Taking Out a Loan While Unemployed

If you’re considering taking out a personal loan during unemployment, there are some things to consider.If you can’t make timely payments or you miss payments altogether, the potential consequences to your credit can be significant. If you don’t qualify for a favorable interest rate, a loan may not be helpful in the financial long term and you might want to consider alternatives.

Benefits and Risks of Personal Loans During Unemployment

What Are Some Alternatives to Taking Out a Loan While Unemployed?

A personal loan is a financial tool that can be useful in some situations. It may even be an option for people seeking loans after bankruptcy. But it’s far from the only tool you have to work with. For example, using your credit cards may be one option to consider. The interest rate on your credit card is likely higher than what you could get with a personal loan, but it offers existing credit approval without having to apply to a lender for a loan. If you use your credit card, coming up with a strategy for how you’ll pay it off as quickly as possible is a smart move.A personal line of credit (LOC) may be another option to consider. Personal LOCs work similarly to credit cards, but they can offer lower interest rates. Funds from the LOC can be withdrawn, up to the approved limit, and repaid in monthly payments. Interest accrues on any unpaid balance. LOCs generally have a draw period of a certain number of years, followed by a repayment period, during which no more money can be borrowed, and monthly payments continue until the balance is paid in full. Another option, similar to a personal LOC, is a home equity line of credit (HELOC) using your home as collateral. This may be the last option some people consider because you risk losing your home if you default on your loan.

Other Financial Relief Options for Students

Students who find themselves financially strapped can explore financial aid such as scholarships, grants, work-study programs, student loans, and emergency student aid.

Student loans can be federal or private, each having their own approval process and pros and cons. It’s important to note that federal student loans offer repayment options and student loan refinancing options that may not be available with private student loans.
Federal student aid may also include grants and work-study.
Scholarships and grants are available through community groups, nonprofit organizations, university alumni groups, professional associations, and more. Checking with your school’s financial aid office is a good first step to researching these opportunities that typically do not have to be repaid.
Emergency student aid can help students pay for housing, food, and other essential needs.

The Takeaway

Funds from a personal loan can be beneficial when you’re unemployed or a student. Understanding the risks and benefits of taking on debt can help you determine whether a personal loan is the best solution for you. Take your time in finding the personal loan interest rates and terms that fit your needs, and a personal loan can be a tool that can help you through an otherwise challenging period.Lantern by SoFi can help you compare rates and terms from multiple lenders. In just a few minutes, you can see personalized rates at no charge to you and without affecting your credit.* Check your rate at Lantern by SoFi.

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About the Author

Sheryl Nance-Nash

Sheryl Nance-Nash is a freelance writer specializing in personal finance, business, and travel. Her work has appeared in Money Magazine, Newsday, The New York Times, Business Insider, BBC.com, AARP the Magazine, ABCNews.com, Forbes.com, among others.

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