It is possible to qualify for a personal loan when you’re unemployed, but you will need a solid credit score and some other source of income. However, even if you lose your job unexpectedly or by choice, like in the case of retirement, lenders may consider extending you a loan as long as you can prove you can make on-time payments. Specifically, lenders would want:
- A strong credit history
Suppose your credit report shows timely payment patterns, with few to no late or untimely payments, especially over the past few years. In that case, you can reassure lenders that you can manage the loan personal responsibly. In addition, most lenders prefer credit reports that do not contain adverse events like bankruptcy or foreclosure.
- Credit score
Various types of loans, such as personal loans and automobile loans generally have different minimum credit score requirements. After that, they reserve their most attractive loan offers, those with the lowest interest rates and fees, for borrowers with FICO scores in the very good or exceptional range. Of course, as credit scores are calculated based on the data from your credit reports, if your credit history is in good standing, your credit score is also solid. But, before applying for a loan, you might be able to raise your credit score pretty quickly, within a few months, if you pay down any credit card balances that exceed 30% of the cards’ borrowing capacities.
- Steady income
Lenders need to know you will make your monthly loan payments. It would help if you had reliable and sufficient income to cover your monthly expenses with some leftover to cover your loan payments. It need not be a paycheck, but it must be adequate to cover your monthly costs plus your loan payments.
In the case where you can’t provide proof of employment, your lender may want to verify other sources of income by examining your financial records. For example, while unemployment benefits can represent part of your monthly income, their temporary nature means that you shouldn’t rely solely on them. Other forms of income lenders may accept include: income from your spouse or partner if they are a cosigner on loan, social security benefit payments, public assistance, pension funds or other retirement benefit payments, Veterans Affairs benefits, disability income, regular proceeds from a trust, alimony or child support, government annuity payments, and recurring interest or dividend payments.
If you don’t have any income streams, you might be able to qualify for a loan by showing you have access to significant funds, either now, in a savings account, for instance, or in a savings account later. A few situations a lender may accept: the pending sale of real estate, securities, or other investment property, a pending employment offer or contract for freelance work, an upcoming inheritance.
Regardless of your employment status, you must be honest about your ability to repay the loan on time. Defaulting on several payments will leave a significant blot on your credit record, and missing one payment will have far more detrimental effects.
It would be best to be realistic about your ability to cover the monthly payments throughout the loan term. You might consider skipping the loan or borrowing a lower amount you can repay if you have any doubts.