As of May 1, 2020, 30 million Americans have filed initial unemployment claims. That number is only expected to rise as businesses continue to furlough and lay off workers as a direct result of the coronavirus pandemic. During this spike in joblessness claims, many people may be considering alternative sources of financing to help themselves stay afloat. Aside from applying for unemployment benefits, many people may be turning to a personal loan.
Whether you’re looking to cover your day-to-day living expenses or you need income to fund a large expense, taking out a personal loan may be a smart option for those who lost their jobs. If you believe a personal loan may be the best option for you right now, use Credible’s free personal loan tool to see what kind of rates you qualify for.
However, like any other financing options, you should be sure to do your research before filing a loan application. With that in mind, here’s what you need to know about personal loans and how they can line up with your financial goals.
Can I qualify for a personal loan if I’m unemployed?
Since most personal loans are unsecured, meaning they aren’t tied to an asset as collateral, your income is often one of the most important factors in being approved. With that said, qualifying for a personal loan while you’re unemployed may be more difficult. However, it can be done. Here’s what you need to make it happen.
An alternative source of income
The paycheck that you typically receive from your job isn’t the only source of income out there. When you’re unemployed, it’s important to look into alternative options.
“In some states, unemployment benefits may count as income,” advises James Lambridis, the founder of DebtMD, a fintech startup in Wayne, NJ. “Otherwise, you could also consider using a parent or spouse as a co-signer on the loan.”
In addition, income from investments and pensions will likely be considered, as will a pending job offer or income from any freelance or part-time work. If you have alternative sources of income and want to see if you qualify, enter your desired loan amount into Credible’s online marketplace and compare offers from lenders almost instantly.
A strong credit score
Beyond your source of income, you’ll also need a strong credit score. Again, since most personal loans aren’t tied to an asset, lenders want proof that they’re likely to be repaid. They’ll look toward your payment history and other information on your credit report to give them that reassurance.
While a good credit score may not entirely make up for a lack of income when applying for a personal loan, it may go a long way toward securing you an affordable interest rate.
How to choose a personal loan that fits your needs
Shop around
When you’re in the market for a loan one of the smartest things you can do is shop around with a few different lenders. Every lender will offer different rates and fees, so shopping around gives you the opportunity to find the personal loan that’s the best fit for you. If you’re unsure of where to start with your search, Credible can help you to compare lenders from the comfort of your home.
Read the fine print
Once you’ve decided on a lender, the next step is to read the fine print.
As Lambridis puts it, “It isn’t just the interest rate that you have to look out for. Every loan comes with some sort of origination fee that you’ll need to be prepared to pay.” An origination fee, for the unfamiliar, is a fee that the lender charges to cover the costs of closing on the loan.
Beyond the fees, it’s also important to make sure you understand the repayment terms that are being offered to you, as well as what happens if you happen to miss any payments along the way.
What happens if I’m not approved for a personal loan?
If you don’t end up getting approved for a personal loan, you can always take steps to improve your application and then try again, such as looking for a co-signer or taking on some additional freelance work.
However, if that isn’t an option, you can also look into alternative options to cover your expenses for the time being. In particular, if you have a good credit score, 0% APR credit cards can be a good option. They allow you an introductory period where your charges don’t accrue interest.
Otherwise, you may have to look into secured loans. You may want to look into a personal loan that’s secured by an asset like your car or savings account. Alternatively, if you own your own home, a home equity loan or line of credit (HELOC) can help you get the funds you need at a relatively low interest rate.