Loans for Unemployed Workers: What You Need to Know
We get a lot of questions about loans for unemployed workers so we wanted to write and article to shed some light on the subject. Losing your job or getting laid off is often a life-changing experience, and not in a good way. Rather than saving money and enjoying vacations, you may find yourself struggling to pay your rent.
Even if you have money saved up, it can be difficult to make ends meet. This is especially true if losing your job was an unexpected occurrence. However, the future is not entirely bleak for those who find themselves in need of extra cash.
While many people think of loans as a necessary requirement for buying a car or a home, those are unemployed can also acquire them.
As you may expect, the process for obtaining a loan as an unemployed individual is different than normal. Read on to discover all you need to know about loans for unemployed workers.
Some Lenders Count Unemployment Checks as Income
When looking for people to lend money to, lenders generally only offer loans to people who have a solid likelihood of paying the loan back. This means that people with no income or very poor credit are often overlooked during the process.
But, those who receive unemployment checks from the government are in a separate category.
Some lenders count unemployment income as regular income, which means that unemployed workers who are seeking a loan will be able to secure one. In a situation where money is dire, this can be a life-saving occurrence.
You should make sure that the income you receive is enough to make your loan payments, however.
You Can Cosign with a Friend or Family Member
As previously mentioned, lenders are sometimes skeptical about some of the people who are seeking a loan from them.
Even with decent credit and unemployment income, there are some lenders out there who may still be on the fence about their decision. But, from a business standpoint, this makes sense as a practice.
In this scenario, having a friend or family member cosign the loan may help change the lender's mind when deciding whether not to give that person a shot.
In addition to actually being considered for the loan, those who have a cosigner will generally find themselves with lower interest rates.
But, you should understand that you are putting your cosigner at risk if you failed to contribute to your part of the loan. This can strain relationships with friends and family, so only cosign a loan if you are sure you can do your part.
You Have to Actually Be Able to Pay Back the Loan
One of the biggest mistakes you can make is taking out a loan for a high amount that you have a low possibility of repaying. While you may have the unemployment income for it, other expenses may have priority over loan payments.
Firms will offer loans for unemployed workers if they can prove that they have enough income to make payments for it. As you can expect, this income is often in the form of unemployment checks.
If you find yourself in need of a loan to make up for the monthly expenses that you can no longer afford, a lender may not offer one to you if your unemployment income is not high enough.
But, the proper course of action from this point is to seek a loan for a lower amount or one that has a higher interest rate.
Keep in mind that you will be considered riskier than someone with a higher income, which is why...
You'll Most Likely Have a Higher Interest Rate
Firms that loan money to people make a profit from the interest that people pay on their loans. Otherwise, they would be giving away money for free.
But, unemployed workers (even if they have unemployment income) are not a very enticing choice for most lenders. This is due to the fear that unemployed workers may not be able to repay the money they owe.
To make up for this risk, lenders charge a higher interest rate for this type of borrower. The more that you take out loans, the more drastically a high-interest rate will impact you.
Therefore, you should only borrow exactly what you need if your interest rate is high.
You Can Offer Collateral
If you're having trouble finding a wonder who will offer you a loan, you're able to offer collateral in order to prove your reliability.
Collateral is a term with a loose definition. Essentially, it is something that you offer to the lender that they can legally take and sell if you don't repay your loan.
But, collateral could be many different things. For example, it could be a house, vehicle, or other valuables. Collateral can also be intangible assets such as investments and insurance policies.
Collateral gives the lender peace of mind that they will be covered if you somehow fail to repay your loan. It's not an uncommon story for people to take out a loan and lose their collateral because they didn't make sufficient payments.
The lender will have all legal rights to the possessions you offer up for collateral. As such, you should not take this option if you are not positive that you can repay the loan.
Good Credit Helps Drastically
If you have good credit, you'll already have an advantage when seeking money from lenders who offer loans for unemployed workers. This is because good credit proves that you are reliable when it comes to making payments on time.
If you are very recently unemployed and do not yet have unemployment income, a stellar credit score may help you secure a loan.
Also See: Life Insurance Explained
Loans for Unemployed Workers Don't Have to Be Difficult
While it may seem daunting to find loans for unemployed, it is not at all impossible. You just have to find the right lender that works for you.