There is nothing more stressful and challenging than a period of unemployment, and even though the majority of people will experience joblessness during their lifetime, there is still a stigma that is hard to get rid of. Fortunately lenders now recognize that losing your job is not always your fault, and you can still be a responsible lender worth issuing a loan to. These types of loan fall in to numerous categories, so here’s what you might by able to apply for depending on your individual circumstances.
Loans for a Secondary Source of Income
One of the key financial indicators a lender will look for when determining your eligibility for a loan is a stable source of income. However that does not necessarily just mean income from employment. There are numerous types of government benefits that you may be paid on a regular basis that can be used as an alternative to a typical wage. This might include disability payments you receive for being temporarily or permanently injured or disabled, supplemental security income, disabled widow and widower benefits, and other types of social security.
If you have unemployment insurance and lose your job through no fault of your own, you will receive regular payouts from this program. This can be used as income for certain lenders, as can payments from private pensions.
As long as you can show that you have a stable and regular source of income that is enough to cover the amount you wish to borrower, certain lenders will still loan to you if you’re technically unemployed.
Unemployed With Assets
You can also be issued a loan even if you have zero income at all. This is because a person’s overall financial standing is not just determined by what cash they receive, but the current cash they have. So if you have a large amount of savings and/or valuable assets, this may be enough for some lenders to deem your secure enough to lend to. This is because in theory you can dip in to this wealth to cover the loan, whether that means drawing directly from your savings or selling assets to raise the funds.
Seeking a secured loan where you specifically pledge something of value as collateral will improve your chances of getting a loan even further if you are unemployed. Common forms of collateral include land, real estate, vehicles, expensive jewellery, equity in life insurance and other polices, and virtually anything that is valuable and easily transferred or sold.
If you are unemployed but own your own home or have paid a substantial amount of the mortgage off, you can apply for what is known as a home equity loan. This is actually very similar to a credit card, however the credit limit is the equity within the home. It is also much the same as pledging the home as collateral, because if you fail to repay the loan a sale can be forced to cover the percentage owed.
Co-signers and Guarantors
If lenders are not approving your loans because of your own financial situation or unemployment, there’s a mechanism that essentially acquires somebody else’s credit-worthiness as your own. This person is known as a co-signer or guarantor, and if they sign up with you they will be agreeing to cover the obligation if you yourself fail to do so. This will commonly be a friend or family member.
Micro lenders are smaller lenders, often made up of individuals looking for ways to get a return on their savings. With the advent of the internet they have become much more popular, and pools of individuals are now rivalling larger lenders in what they can offer. The good news is that they are more likely to lend to low income and unemployed borrowers than the bank downtown. Some are even designed specifically for those in hardship.
Formally Informal Loans
If an informal loan is borrowing from friends and family, a formally informal loan (we made that up) is borrowing from friends or family through a legal contract. Anyone is allowed to draft a legal document and if signed with reasonable terms (i.e. those similar to a bank, with the principal, interest and other terms), can be enforced in a civil court. For larger amounts you may want to get a lawyer to give it the ok, but borrowing like this is a nice and secure way that bypasses traditional lenders and their policies.
Although not a loan for your own purposes necessarily, if you are unemployed and seeking to further your education and become more employable, you can seek out a “retraining loan” from the government which will fund your courses and training up to £5,500. This is a great opportunity for building your future prospects.