Anybody can have an emergency financial requirement. Even an unemployed person can have the immediate need for money for different reasons. In such situations, you can apply personal loan to fund your needs. Applying for a loan when you are unemployed is quite a tough thing. An employed individual can ask for a loan by showing his or her income as proof to show the ability to repay. Many banks may reject your loan application when they see that you are unemployed.
The eligibility for personal loans is calculated by checking the applicant’s income, nationality, and age. However, your unemployment status should not deter you from applying for a loan when you are in dire need of money.
A few of the situations in which you are unemployed include:
- Waiting to get a job after graduation
- Taking a break from employment and looking for a new job
- Quitting a job to get back to higher education
- Quitting a job to start a business on your own
- Making money from other income earning assets
- Quitting due to health reasons
Best Ways to get a Personal Loan When you are Unemployed
Here are the ways through which you can take a personal loan when you are unemployed:
- Maintain a Good Credit Score:
If you are unemployed with a good previous credit history, then it does not matter. You can still apply for a loan with the help of your good credit score. Your credit score will show that you can repay your loan on time. This will help the loan provider to trust your repayment ability. Therefore, if you are unemployed for a certain period, make sure you enhance your credit score before you apply for a personal loan.
- Own Income Earning Assets:
You do not have to worry if you are currently not working with any company. If you have any income earning asset in your name, you can mention it while applying for a personal loan. This will give a sense of assurance to your bank that you will be able to repay your loan with the money earned from these assets. You may have to show your previous bank statements to prove that you are actually making money from these assets. Income earning assets can include shares, income from property given on rent, bonds, certificates of deposit, and other assets that will help you in earning dividends or interest. These assets provide a stable income and they are great financial instruments for long-term planning.
- Give an Asset as a Collateral:
Most personal loans are unsecured in nature. Banks provide personal loans without asking for a collateral. However, if you want to apply for a very high loan amount, some banks may ask you to give a collateral. Presenting a collateral is a great way to procure a loan when you are not salaried. This will serve as a security for your lender. It is also beneficial to you as loans that are given with a collateral generally come with very low interest rates. Due to the security provided in this arrangement, the interest rates are low. When you give a collateral, in case you fail to pay your instalments on time consequently, your asset can be used to pay for the money you owe. This is how a collateral arrangement works.
Points to be Considered Before Taking a Loan When you are Unemployed
Let us take a look at some of the important points that you need to consider when you are applying for a loan:
- You Need to Assess if you can Repay the Money:
Taking a loan when you are unemployed is a very big step. You need to make sure that you will be able to repay. Plan your monthly expenses and include your personal loan instalments in your monthly expenses. After you add these instalments to your monthly expenses, question yourself if you will be able to repay your full loan on time.
- Meet Other Eligibility Criteria:
Banks have eligibility criteria to apply for a loan. You will typically be required to earn a minimum income, be a Singapore citizen or a permanent resident or a foreign national with an employment pass, and be above 21 years old. Some banks may be lenient with you regarding their minimum income criteria. However, you will have to meet the other criteria. Apart from the income, age, and nationality criteria, you will also have to meet other criteria such as not being bankrupt. You should not be paying any other loan or credit card debts while applying for this personal loan. You should not have any outstanding balances from any short-term debts also.
How do you Know if your Personal Loan is the Best Choice?
Let us discuss how you can select a good personal loan:
- Before you apply for a personal loan, you need to ensure that you do proper research regarding every loan product. You can read online reviews to get a clear idea regarding each product.
- Find out about all the charges and fees that you are required to pay for a loan. The common types of fees for loans include processing fee, late payment fee, and prepayment fee.
- You can use an online loan calculator to compute your monthly repayment amounts. You only have to enter your loan amount and loan tenure. According to the interest rate, your instalments will be displayed on your screen. This will help you plan your monthly finances.
- You will need to check if your loan has a fixed interest rate or a variable interest rate. Fixed interest rate loans will have the same interest rate for the entire loan period. Variable interest or flat interest loans will have changing interest rates depending on the variations in the financial market.
- You also need to enquire if your loan follows a flat rate method or a reducing balance rate method. If your loan follows the flat rate method, you will repay your loan by paying interest on the initial principal amount of your loan. If your loan follows the reducing balance rate method, you will pay interest on the outstanding principal amount. You can choose from any of these methods depending on your preference.
Advantages of Loans that are Given to Unemployed Applicants
These are some of the benefits of loans for unemployed:
- You can get a low interest loan by providing a collateral.
- You can make your repayments in a flexible manner.
- You can choose from both short term and long-term loans.
Most banks require you to be employed when you are applying for a loan. You can be a self-employed individual too. However, due to personal reasons, if you are unemployed, you might still get a personal loan if you provide valid reasons and if you prove your ability to repay promptly.
Q. How can I get a personal loan without any proof of income?
A. Yes, you can get a personal loan if you are unemployed if you pledge a collateral, have enough savings in your account, or co-sign the loan agreement.
Q. Can I apply for 2 personal loans?
A. You can apply for 2 personal loans, but make sure you have enough cash to repay both of them on time. Or else, you might end up in a debt and pay higher interest rates.
Q. Is taking a personal loan from a bank the only option?
A. No, you can lend cash from licensed and registered moneylenders. These moneylenders charge higher interest rate and have faster turnarounds. The repayment options are flexible as well.
Q. If I do not qualify for a personal loan, what are the other options?
A. If you do not qualify for a personal loan, you can consider other alternatives such as home equity line of credit (HELOC), cash advance, balance transfer, gold loan, and cash against pawning something valuable.
Q. Will the personal loan application affect my credit score?
A. Once you receive the loan amount and repay on time, you will build a good credit history and have a positive credit score. If you miss repayments, your credit score will get negatively affected and you may face troubles applying for loans in the future.