Unemployment is a tough period and getting a personal loan to help you get through a rough patch of life, you probably have a lot of questions popping up in your mind about how to achieve it. Here we will discuss a few things related to obtaining a personal loan without a job and what things you should be careful about before getting a loan.
Step 1: Considering important aspects before getting a loan
If you lost a job recently or have been unemployed for a long time and you are considering taking a loan, here are a few things you should focus on first. You should be aware of the short and long-term financial consequences of obtaining loans. Now there are some important questions you should ask yourself before acquiring loans.
Can you make timely payments?
You must do on-time payments to the lender because delayed payments will result in affecting your credit score and may come with late fees. And if you by any chance fail to pay back a loan, the lender will start the debt collection, lodge negative details on your credit summary, restrain your personal belongings or even file a case against you in court.
Do you fully understand the Terms of the loan?
It is important that you properly grasp the terms and conditions when borrowing money and thoroughly read them. The letter contains details pertaining to when to do loan repayment, and what are the interest rates, the penalties and much more.
Are you aware of the risks?
Before looking out for a loan, you should seek help from a financial expert and get familiar with the risks that come with getting a loan. It is good to prepare yourself for any worst and best scenarios. You can ask the financial expert if you would lose your home or car due to non-payment of a loan or is there any better option than going for a personal loan.
Step 2: Eligibility for getting a loan
There are certain characteristics lenders look at before issuing and accepting your loan applications. They have to make sure that you can repay the loan by looking at your financial history. The lenders look at four factors before coming to any conclusion.
Proof of your income
Before lending you money, most lenders ask you to disclose proof of your income by showing them your bank statement and tax records. The evidence of your income will assure the lender that you will likely pay back the loan. This also qualifies how much loan you can borrow. In case of unemployment, the lender will consider other sources of income such as social security, trust funds, retirement funds etc.
The debt-to-income ratio
This is to show how much debt you have acquired against your monthly income. This ratio is used by the lender to see if you would be able to handle an additional debt or not. You can calculate this ratio by dividing your monthly income by gross income. The higher the ratio, the riskier it is for you.
Check your credit score
The lenders lastly want to check your credit score to make out if you are a risky borrower or not. Lenders make use of a model known as the FICO credit model where the credit scores range from 300 to 850. The FICO model computes the credit score by looking at the amount of debt borrowed, your payment history etc.
Step 3: Substitute for personal loans for unemployed individuals
If you think taking a personal loan is a risker option for you then here are some alternatives that you might give a thought to.
Go for Family loans
If you don't have evidence for your income then you should try getting a family loan. A family loan involves asking for a loan from a family member, this way you don't have to sign a contract. It may not involve a contract but it is better to discuss the terms and conditions with your family member before borrowing a loan.
Try out a co-signer loan
In a co-signer loan, there is another person responsible when you procure a loan for yourself. The co-signer is someone who willingly agrees to pay for the loan, in case you missed the payment or defaulted on it. Not to forget the co-signer should have a good credit score to be able to help you out.
Conclusion
To conclude, it is advisable to look at every option available to you. Make your decisions by looking at the pros and cons of each type of loan. It is better to consult a financial expert who can guide you better over such circumstances.
Frequently asked questions
What is the required credit score to qualify for a loan?
A credit score of 300 and below doesn't qualify you for a loan. A credit score of 600 and above qualifies you for a loan.
What to do if you don't qualify for a loan?
Don't worry if you don't have an income statement to show the lender, you can consider getting a family loan or a co-signer loan.
What are the best companies to acquire a loan from?
PenFed Credit Union (4.7 ratings)
Discover (4.5 ratings)
Upstart (4.3 ratings)
