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Updated on Friday, April 2, 2021
Personal loan lenders determine eligibility based on a number of factors, such as credit score and income. It can be difficult to get a loan without a job, but it may be possible to qualify if you have some other source of income or meet other requirements. We break down how to apply for a personal loan while unemployed, and suggest other types of loans to consider.
Where to get a personal loan with a low income
Traditional personal loans are unsecured, meaning you don’t need collateral like your car or savings to back them. However, personal loan lenders generally have stricter eligibility guidelines for unsecured loans than for secured ones.
If you’re unemployed, you may struggle to qualify for a personal loan as lenders will see you as high-risk. But they may consider other types of income besides employment income, including:
- Retirement income
- Social Security income
- Unemployment benefits
- Supplemental Security Income (SSI), including disability benefits
- Child support
Some lending platforms, like the ones in the table below, may be more likely to approve unemployed or low-income earners:
|7 loans for fair credit|
|Lending platform||Est. APR*||Min. income||Min. credit score|
|Best Egg||5.99% - 29.99%||Not specified||640|
|Citi||7.99% - 23.99%||$10,500||Not specified|
|LendingPoint||9.99% - 35.99%||$25,000||585|
|Payoff||5.99% - 24.99%||Not specified||640|
|Peerform||5.99% - 29.99%||Not specified||600|
|Prosper||7.95% - 35.99%||Greater than $0||640|
|Upstart||7.86% - 35.99%||Not specified||600|
|* Annual percentage rate (APR) is a measure of your cost of borrowing and includes the interest rate plus other fees. Available APRs may differ based on your location.|
What lenders consider besides income
While lenders typically ask about your annual income and may request proof, it’s not the only information they’re interested in when deciding whether to extend a loan. If you’re unemployed, you may still be a good candidate if you have the following:
- A high credit score. Borrowers with good credit are likely to pay on time and keep the account in good standing. Those with low credit scores, delinquent accounts, past bankruptcies or lots of outstanding debt will have a much harder time getting approved.
- A low amount of debt in your name. Lenders want to see a low debt-to-income ratio, so even if you have a low income, a low amount of debt can offset that. Make sure you consider credit card debt, auto loan debt and student loan debt when calculating your debt load.
- Money in the bank. A healthy savings account balance shows lenders you have the funds to make debt payments, thereby making you appear a less risky borrower than someone with both low income and little to no savings.
- A cosigner. You can leverage a friend or family member’s good credit score by asking them to cosign on a loan. Lenders will consider a cosigner’s credit history and finances in addition to your own when reviewing your application. However, the cosigner shares the responsibility of repayment; if you fail to make payments, their credit will suffer alongside your own.
5 types of loans for unemployed or low-income borrowers
Getting a loan when you have no income is always a risky move, as you could struggle to make ends meet with the added debt. And if you can only qualify for a personal loan with a high APR, it might be better to consider alternative borrowing options, such as the ones detailed below.
1. Secured personal loans
A secured personal loan requires that you offer up something of value to act as collateral if you default, such as a vehicle or savings. Because the lender can take possession of the asset used as collateral if you fail to repay the loan, lenders view these loans as less risky than traditional personal loans. As a result, they are more likely to offer you more favorable terms, including lower interest rates, than you might qualify for otherwise.
Carefully read the terms of the loan before agreeing. If you have trouble paying your bills, it’s not just your credit score that will suffer: You could lose your collateral, perhaps putting you in a worse financial situation than before you borrowed the loan.
2. Joint personal loans
If your credit score (or income) is too low to meet lender requirements, you can ask a family member or friend with a good credit score and higher income to open a joint personal loan. This means if you fail to repay, you and the co-borrower are responsible for the debt. In a way, you’re borrowing someone else’s best financial attributes to shore up your own and secure the loan.
Some personal loan lenders allow you to use a cosigner, which is slightly different than a joint personal loan. A co-borrower on a joint personal loan has shared interest in the loan and pays back the loan with the primary borrower, whereas a cosigner is simply a party that assumes responsibility for the loan if the borrower fails to make payments.
3. Credit union personal loans
Credit unions are nonprofit, member-owned financial institutions, and they may be more willing to work with borrowers with a low income. To apply for a personal loan through a credit union, you must first become a member. Most credit unions have membership requirements based on where you live or work, but others open their membership to people who make a donation to a charitable cause.
Here are a few credit unions offering personal loans that are open to anyone:
- Affinity Federal Credit Union
- Alliant Credit Union
- Digital Federal Credit Union (DCU)
- PenFed Credit Union
- Spectrum Credit Union
Some credit unions also offer payday alternative loans (PALs), which are small-dollar loans worth up to $2,000 that must be repaid within one year. They have a maximum APR cap of 28%, and borrowing fees are limited to $20. Regulated by the National Credit Union Administration (NCUA), PALs are a safer alternative to payday loans.
4. Home equity loans
Homeowners who need a loan but have low or no income may consider borrowing a home equity loan. This type of lump-sum installment loan lets you tap into the equity you’ve built in your home, and it typically comes with a lower interest rate than an unsecured personal loan.
Home equity loans typically require that you have at least 15% equity in your home. To calculate your home’s equity, simply subtract the amount you have left on your mortgage from the current value of your home. For example, if you have a home value of $300,000 and a mortgage balance of $250,000, you have $50,000 equity, or 16.67% equity.
Keep in mind that home equity loans are secured by your house. As such, if you fail to repay the loan, you may lose the roof over your head. Plus, you may also have to pay fees when borrowing this type of loan, including closing costs.
5. 401(k) loans
401(k) loans let you borrow from the money you’ve invested in your retirement account. Since you’re borrowing from yourself, 401(k) loans don’t have the credit score or income requirements of traditional loans, which are borrowed from a financial institution. Interest rates are low — typically the prime rate plus 1% — and you’re paying interest back to yourself.
With a 401(k) loan, you can borrow up to $50,000 or half the vested amount, whichever is less. The loan has a maximum repayment term of five years, and payments must be made at least quarterly.
Not all retirement plans offer 401(k) loans, so check with your plan provider. It’s also worth noting if you’re borrowing from a 401(k) through your current employer, you may be required to repay the amount borrowed if you lose or otherwise leave your job. You may also have to pay taxes and other penalties, depending on the circumstances.
Risks of borrowing when you are unemployed
Even if you qualify for a loan while unemployed, carefully consider these major drawbacks before signing on the dotted line:
- Falling behind on payments: If you do not have a regular source of income — or your earnings are unpredictable — taking on a new debt could later mean you struggle to make payments. Falling behind on debt will negatively affect your credit as lenders report your payment history to credit bureaus. This could limit your ability to qualify for debt later.
- Receiving unfavorable loan terms: Because you have low income, or none at all, lenders will offset their risk in lending to you by charging you a higher interest rate. This can make repaying your debt difficult, or stick you in debt for longer than you’d prefer.