Being unemployed is a real challenge, especially if you’re not having any luck getting back on your feet. While having an emergency fund is an important way to make sure your finances are protected, what happens when this isn’t enough? Unemployment often catches people off guard, and it’s tempting to seek for quick ways like a loan for unemplyoment to get funds fast.
One of these quick options is a loan. Unemployment loans are intended for those who find themselves out of a job and need a way to make ends meet. They’re a type of personal loan, and that means they come with some added risks. However, are they a good fit for unemployment? Here are 3 things to consider before taking out loans for unemployment.
Is It Possible to Get a Loan If You’re Unemployed?
First and foremost, let’s talk about whether it’s possible to get a loan if you’re not employed. Whenever you apply for a loan, the lender looks into the following to make sure you’re “creditworthy:”
- Credit history – First, they’ll check your credit rating to see if you’re a reliable individual. This includes a number of factors, but it mostly depends on how you’ve paid loans and credit in the past.
- Debt-to-income ratio – Do you already have a lot of other debt? If so, this shows lenders that you might not be in the best financial situation right now.
- Income – Finally, lenders look into your income. They want to see that you have money so that you can efficiently pay back your loan (earning them money).
With all of that said, is it possible? In short, yes. However, you might face higher interest rates, more complicated terms, and you’ll need to prove your creditworthiness in alternative ways. Before agreeing to a new loan when you’re unemployed, consider these 3 things.
1. Can You Pay Your Loan for Unemployment on Time?
The most important thing to consider is this: can you actually afford to repay your loan on time? Because you’re a bigger risk to lenders, you’ll face a higher interest rate and a shorter repayment term. This is because lenders aren’t confident you can repay a loan long-term.
If you’re not sure you can pay your loan on time without missing payments, it’s best to avoid getting a loan and consider if a debt solution would be a better option. Missed payments are a slippery slope, and extra fees add up quickly. Start by creating a budget to see if you’re financially able to pay your loan on time.
2. Do You Have Alternative Income?
Even if you’re unemployed, there are ways to make alternative income quickly. In this day and age, side hustles have never been more common. Many of these can earn you quite a bit of cash if you’re creative.
However, it’s important to note that these side hustles aren’t always reliable. You could have a lot of cash flow one week only to be left high and dry the next. Plan long-term before agreeing to a new loan.
Alternative forms of income can come from a number of things:
- Friends and family
- Freelancing or contract work
- Selling personal belongings
- Working a gig job (like food delivery, rideshare, etc.)
- A side hustle
- A part-time job
If you have any of the alternative types of income above, it might be possible to get a loan while technically “unemployed” in a traditional full-time job. Make sure you’re budgeting for your expenses and emergencies before you begin the loan process.
3. Is There a Better Option?
Lastly, is there a better option than a personal loan? There are a number of risks to choosing a personal loan, though it’s easy to see why it’s such a popular choice. Instead, there are a number of options that might offer the same financial relief without the same stress.
While you’ll need to assess your specific situation, here are some alternatives to personal loans:
- Credit card – Credit cards usually offer cash advance, and you might also be able to increase your line of credit if necessary.
- Secured loan – Unlike a personal loan, a secured loan allows you to use your home or another asset as collateral. This can keep interest rates lower.
- Debt agreement – If you’re hoping to use your personal loan to pay your debts, it might be better to choose a debt solution like a debt agreement to arrange a lower payment rate.
If a better option is available for your situation, it’s worth considering above a risky personal loan.
Is an Unemployment Loan Right for You?
While it is possible to get unemployment loans if you don’t currently have a job, this isn’t always the best option. Depending on your situation, this type of loan could be risky or come with unexpected consequences.
Like with all financial decisions, it’s a good idea to talk things over with a professional who can take your finances into account. Our friendly experts at Debt Busters are here to help every step of the way. We know how tricky unemployment can be, so let’s work on a solution together that helps you move forward with confidence. Call us today on 1300 368 322.