How to get a loan when you’re unemployed

Getting approved for a loan if you’re unemployed isn’t impossible, though you’ll want to take certain steps to improve your chances

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If you’re out of work and need some money to get by, it’s possible to find lenders who give loans to the unemployed.  (Shutterstock)

Being unemployed is a stressful situation, and it can feel even worse if you also need to get a personal loan while you’re out of work. The good news is that it’s possible to qualify for a loan, even if you’re unemployed.

Here’s what you need to know about how to get a loan when you’re unemployed, as well as things you can do to increase your chances of loan approval.  

You can use Credible to compare personal loan rates from multiple lenders, all in one place.

Where to get a loan when you’re unemployed

If you’re unemployed, you can typically find loans from some banks, credit unions, and online lenders. Although lenders look at income sources when considering borrowers for a loan, it’s not the only factor. Some lenders offer secured loans — where you put up collateral for the loan — which may be easier to get than unsecured loans.

Don’t discount alternative sources of income when applying for personal loans from a bank, credit union, or online lender. Many will consider sources such as Social Security payments and any income you’ve earned from freelancing or side businesses.

It’s important to shop around, compare multiple lenders, and be upfront about your situation. That way, you won’t waste time filling out applications for loans where you’re more likely to be turned down. 

Should you get a payday loan when you’re unemployed?

It may be tempting to apply for a payday loan when you’re unemployed because they offer fast funding and don’t require a credit check. But these short-term loans come with extremely high fees — equating to triple-digit APRS — and short repayment terms. If you can’t pay the loan back by the due date, you’ll need to keep borrowing more, and you’ll accrue fees and penalties that are tacked on to your loan balance, which can trap you in a cycle of debt. 

Even if you’re unemployed, you should only consider using payday loans as a last resort. 

How to get a loan when you’re unemployed

Your ability to get a personal loan doesn’t depend solely on your employment status. Here’s how to get a loan when you’re unemployed: 

Determine how much you need to borrow

Make sure you don’t borrow more than you really need so that you don’t end up paying more interest than necessary. It’s important to make sure that your monthly payments will fit within your budget. You can use a personal loan calculator to help you figure out how much to borrow and what your monthly payments might be.  

Check your credit

Looking at your credit report and score will help you determine which lenders might be most likely to approve your loan. You can request free copies of your credit report from the three main credit bureaus on Many lenders disclose their credit score requirements upfront. Knowing your score ahead of time can help you avoid applying for loans from lenders whose minimum credit score requirements may be out of reach. 

Shop around and compare lenders

As you’re researching your personal loan options, compare lenders based on factors like rates, loan terms, and the amount you can borrow. It’s also important to look at each lender’s eligibility criteria to find ones that work with unemployed people

Apply for the loan

Once you’ve chosen a lender, you’ll formally apply for the loan. You’ll need to provide documentation, which typically includes: 

  • Government-issued identification, such as a driver’s license or passport
  • Social Security number
  • Proof of income

Once you submit your application, lenders will look at your credit history and personal information to determine whether you qualify. If approved, it may take up to a few business days to receive your loan funds depending on the lender and how quickly your bank processes the transaction. 

Credible lets you compare personal loan rates without affecting your credit score.

Factors lenders consider when you apply for a loan

Lenders consider multiple factors once you submit a loan application. They use these factors to determine the likelihood you’ll pay your loan back on time: 

  • Credit score — In general, the higher your credit store, the more likely you’ll qualify for a loan with a lower interest rate. If you’re unemployed but have a good credit score, you should still be able to qualify for a loan. But if your score is lower, you may not be approved, or you may receive offers for higher interest rates.
  • Debt-to-income ratio — Lenders look at your debt-to-income ratio, or DTI, to determine whether you have enough income to afford taking on a new loan. To determine your DTI, divide your total monthly debt payments by your gross monthly income. (Note that unemployment benefits are considered income when looking at your DTI.) If this number is considered too high for lenders, it could indicate that you don’t have enough income to afford your expenses and debt repayments.
  • Payment history — How you repay existing loans is an indication for lenders of how likely you are to repay a new loan. Plus, it’s one of the biggest factors credit bureaus consider to determine your credit score.
  • Income — Lenders will most likely require proof of steady income when you apply for a loan, but it doesn’t always have to come from an employer.

What counts as income?

When you apply for a loan, lenders understand that your income may not come from an employer — everyone’s financial situation is different. 

Here are some common sources lenders count as income:

  • Government benefits — Sources include disability payments, Social Security, and unemployment benefits.
  • Inheritance If you recently received money as a beneficiary, you may be able to include this amount in your application.
  • Investments Recurring income from sources such as dividends could show lenders your ability to repay a loan.
  • Other income — This might include income sources such as alimony or child support.
  • Pension or retirement income — Money you receive regularly from these sources typically counts as income.
  • Rental income — Any money you make from short- or long-term leases counts as income.
  • Spouse’s income — Some lenders may allow you to use this as an income source if you’re married.

How to improve your chances of getting a loan when you’re unemployed

Since taking out a loan when you’re unemployed may be riskier for a lender, it’s crucial you ensure your personal loan application is rock-solid to increase your chances of approval. Here are several ways to improve your chances of qualifying for a loan when you’re unemployed:

  • Add a cosigner. Applying with a cosigner, especially one with a high credit score and who is employed, will show lenders that someone has the ability to repay the loan. Adding a cosigner can come with risks — they’ll be assuming responsibility for repaying the loan if you aren’t able to — so it’s important to have a conversation with them on how you plan to repay the loan.
  • Apply for a smaller loan amount. In many cases, your loan could be denied if you apply for a large amount of money. Applying for a smaller amount instead could lower your risk factor and reassure lenders that you’re more likely to pay it back.
  • Apply for a secured personal loan. When you apply for a secured loan, you provide an asset as collateral, such as a car or house. Secured loans are less risky to a lender, so you may have a better chance of being approved. But think carefully before applying: If you default on your loan payments, the lender can seize your collateral.

If you’re ready to apply for a personal loan, Credible lets you easily compare personal loan rates in minutes.

Personal loan alternatives when you’re unemployed

If you’re not interested in getting a personal loan or are having trouble getting approved for one, consider these alternatives if you’re unemployed: 

  • 0% APR credit card — Depending on your credit score, you could be approved for a credit card that offers 0% APR on purchases and balance transfers for a set period of time. Keep in mind you’ll need to pay the entire balance off by the time the introductory offer is over, or else you’ll start accruing interest at the card’s regular rate. Plus, credit card balance transfers can come with fees, so determine whether they’re worth it first. If you don’t qualify for a 0% APR credit card, a regular credit card can be a way to fund expenses fast, though you could be paying high interest rates.
  • Borrow from family or friends — Asking a friend or family member for a loan may have some advantages, such as not having to pay interest. But make sure you’re borrowing from someone you’re on good terms with. It’s also a smart idea to lay out the exact terms of the loan in writing so that everyone is on the same page and you minimize any potential strain on the relationship.
  • Home equity loan or home equity line of credit (HELOC) — Homeowners might consider one of these financial products, which use your home equity as collateral. Since they’re a form of secured credit, you risk losing your home if you fail to make your loan payments. You’ll also want to consider any potential fees, such as application fees or prepayment penalties.
  • 401(k) loan — Depending on your 401(k) provider, you may be able to borrow the money you have in this account. But this should be a last resort because you're draining your retirement funds and you’ll no longer be growing the amount of money that you take out. Other consequences include owing taxes if you fail to repay the loan on time. Even if you repay it, you’ll have lost out on some tax-free growth on those funds.