Can You Get a Loan Without a Job?

Losing your job can be scary. You need your paycheck to cover essentials, such as housing, food and child care.

If you’re out of work because of the coronavirus, you may need to get a loan to make ends meet. You can take out a loan without a job, but qualifying for one will be difficult unless you can show another source of income.

Here’s what you need to know about how to get a loan if you are unemployed.

[Read: Best Personal Loans.]

Can You Get a Loan if You Don’t Have a Job?

“It can be very difficult — or impossible — to get a traditional unsecured loan while being unemployed,” says Jim Triggs, president and CEO at Money Management International, a nonprofit credit counseling agency.

Because income verification is a key step in underwriting loans, you will present a greater risk to lenders if you lack a steady income compared with a borrower who has a stable job. “Part of their approval process is understanding your income and debt-to-income ratio to ensure that you can afford to repay the loan,” Triggs says.

Your debt-to-income ratio is the percentage of your monthly income that goes toward paying your debts.

You can qualify for a personal loan when you’re unemployed, as long as you have good credit and another source of income, says Leslie Tayne, debt resolution attorney and founder and managing director of Tayne Law Group.

If you’re married, for example, a lender may allow you to include spousal income on your loan application, as long as you can use that income to repay the loan. In some cases, you’d need your spouse to be a co-applicant on the loan to include that income.

Also, you may not be earning a paycheck right now but could have other sources of income that might help you qualify for a loan. Those can include child support, public assistance, disability income, income from a parent or spouse, or trust proceeds.

Lenders consider all types of income when evaluating loan applications. Unemployment benefits count as income, for instance, even though they don’t come from traditional employers.

The same is also true for income from a side hustle or freelance gig or for investment income from rental payments or stock dividends. Alternatively, you can show evidence that you have a pending employment offer.

Still, income isn’t the only factor lenders consider, and it may not even be the most important. Below are other major areas that lenders evaluate:

Credit history. “Credit underwriting varies by lender, but your credit score and credit report are major deciding factors for lenders because they are an accurate method for determining risk,” Tayne says. Your credit profile tells lenders how likely you are to pay back a loan — the better your credit, the less risky you are as a borrower. A low credit score, plus collection accounts, bankruptcies or other negative marks, will make approval harder, especially if you don’t have a steady income.

Bank accounts. Even if you don’t have a job and an income, a cash cushion in the bank can be enough to prove that you can repay your loan. A solid savings account balance can help you get approved.

Collateral. If you’re applying for a secured loan, lenders will consider whether you can back the loan with a physical asset, such as your home or car. Collateral could help you offset the risk you present to your lender by not having a job. At the same time, you take on more risk because the lender can seize your collateral if you can’t make payments.

[Read: Best Debt Consolidation Loans.]

How Can You Increase Your Chances of Getting a Loan Without a Job?

Getting a loan without a job isn’t easy by any means, but you can improve your odds of approval in a few ways.

First, set realistic expectations, and apply for a loan you have a good shot at getting. You may not be approved for a large loan amount, and your repayment period may be short.

Know that you may pay higher-than-average interest charges or origination fees to offset your risk.

Start loan shopping with your local credit union or community bank, especially if you have a bank account or loan there. “If you have a longstanding relationship with a bank or credit union, it could help your odds of getting a loan while unemployed,” Triggs says.

Have your income documents organized and ready to go. Adds Tayne: “Lenders want to take every precaution they can to avoid lending to customers that are likely to default on their loans, so be prepared to show proof that you have alternate sources of income when applying.”

[READ: Best Bad Credit Loans. ]

What Can You Do if You’re Not Approved for a Loan?

If you’re not approved for a loan, don’t lose hope, Tayne says. “There are other options out there, including reapplying for the loan with a co-signer,” she says.

If you lack the credit or the income or assets to qualify for a loan, a family member or friend with good credit and stable income could co-sign the loan. But co-signing comes with risks for each of you.

A co-signer is equally responsible for repaying the debt, and if you don’t make payments, the lender will come after him or her for them. Any late or missed payments will harm not only your credit but also your co-signer’s.

“Make sure you trust the co-signer and vice versa,” Tayne says. “A loan default would affect both of your credit scores and would also likely place a strain on your relationship.”

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