Unemployment can significantly impact your finances, and taking out an installment loan might seem like an excellent option to help you keep going. If you don’t have a job, taking out a loan is possible but very challenging. Also, you'll need to prove that you'll pay back the loan through other means.
Factors Lenders Use In Evaluating Your Loan Application
It's vital to know that lenders look at several factors in assessing your loan application. They do this to know how likely you are to repay the loan. Lending money is a considerable risk for these institutions, so they make careful assessments before trusting a borrower with their money.
Below are some of these factors:
Income
Income tends to be a huge consideration when it comes to borrowing money. This is why not having a job can make taking out an installment loan even more challenging. However, if you have other income sources besides a traditional job, you might have a chance to qualify.
The following are examples of alternative income that might help you get approved for an installment loan:
- Investments
Money from investments can help prove your ability to pay back the loan. Lenders might not accept one-time capital gains. However, recurring income from rental properties or dividends might be considered.
- Spouse’s Income
If you're married, you may be able to show your husband’s or wife’s income on your loan application if the lender allows it. This is sometimes allowed only if you can use your spouse’s income to help repay your loan. Also, if you want to include your spouse’s income as a source of income, your spouse needs to be added as a co-applicant for the installment loan.
- Retirement Benefits
If you're retired, you can use your 401 (k) withdrawals or Social Security benefits.
- Other payments
Other payments may include unemployment alimony and child support.
Debt-To-Income Ratio
Lenders will also consider your debt-to-income ratio. This ratio is calculated by dividing the total monthly debt payments and your current gross monthly income. Gross income generally means your income before any payroll deductions, like insurance and taxes.
A high debt-to-income ratio shows lenders that you might not have enough income to repay your debts and pay your day-to-day expenses.
Credit History
Your credit score is also vital for lenders in assessing your loan application. If you have a low credit score, several lenders offer installment loans for poor credit score. Besides your credit score, lenders will also look at other relevant information like credit reports, accounts in collection, and past bankruptcies.
What Should You Do If You Get Disapproved?
If your loan application isn't granted, you can try lowering the loan amount or communicate with the lender of your choice to find ways to qualify in getting an installment loan. It'll help if you're careful in applying for a loan with several lenders. This is because each application may potentially damage your credit score.
If you don’t have any assets or income, it's quite challenging to get a loan. If this is true for you, you'll need to re-evaluate your current needs and might want to consider other strategies to keep you afloat.
You can try asking your family members or friends to let you borrow some money. Besides this, you can also ask someone to become your cosigner. A cosigner is someone willing to repay your loan if you fail to do so.
Risks of Borrowing While You Have No Job
The following are some risks you should consider before borrowing while unemployed:
- Missed Payments:
When you take out a loan with no job, one of the risks is being unable to pay for it. Failing to repay your loan can negatively impact your credit score. It can also lead to collections and can make your financial situation even harder.
- High-interest Rates:
Several lenders will accept your loan application even if you don’t have a job. However, some lenders tend to charge a higher interest rate. Hence, it's best to watch out for this.
- Short Repayment Terms:
If the lender thinks you are a riskier borrower, they might limit your loan with a short repayment period. This is because a lender will assume that your current financial situation won't drastically change quickly.
In A Nutshell
Taking out an installment loan with no current job can be very challenging. However, some lenders might accept it and grant your loan application if you have other stable income. Lenders will also consider other factors concerning your financial situation to make sure you can repay your loan.
