Why Its Hard To Qualify For A Loan While Unemployed & Options

Getting a loan while unemployed is tough: you get used to rejection fast. Financial assistance isn’t impossible, though. Let’s look at why it’s hard to get approved and what you can do to fix it.

No Guaranteed Income
If you’ve lost your job recently, you have no guaranteed income, which makes you a major risk for lenders. How are you going to pay the loan back? It’s easy for a lender to see why you need money, but not how you can repay it.

Recent Change in Income
Sometimes unemployment results in a recent change in income, meaning you have another job or a spouse who makes money, but your income is reduced. Even if you want to qualify for a loan you can afford to pay back with these other resources, the income reduction can result in a loan decline or an increased interest rate to reflect the risk of the loan.

 
Negative Financial Effects
Unemployment results in a lot of negative financial effects, which can damage your credit. Being late on bills (or having to shuffle bills around) can really damage your credit, which in turn endangers your ability to get a loan.

Underemployment is Possible
Often, people who are unemployed end up becoming underemployed in the future. You need a job, and have to take what you can get. However, that also means you might not be able to pay back as much as you could have done in a past (at your former salary), and lenders are aware of this risk.

No Solid Repayment Schedule
It’s hard to set up a repayment schedule if you aren’t getting paid regularly. Most banks like to set repayment for the day after your regular direct deposit; payday loans are based upon the guarantee of pay, as well. Without that guarantee, it’s tough for lenders to set repayment schedules.

How Can You Get a Loan or Lower Interest Rate While Unemployed?
You can get around some of these difficulties in a few ways. The easiest involves having a cosigner on your loan: a trusted spouse, parent, or friend who is willing to be responsible (on paper) for the loan. This can potentially get you a loan approval and/or a lower interest rate on your traditional loan.

If you only need a small amount, you’re going to be better off borrowing from that friend or family member, and it’s likely they’ll be more willing to lend you the cash than to go through the hassle of cosigning for a low amount.

 
Resources for Finding a Loan While Unemployed
The Newstart Allowance is there especially for unemployed folks in a tough situation. It’s your most solid alternative to getting a loan while unemployed, especially if you’re not sure if or how you can pay it back. It’s not worth missing a repayment obligation or messing up a close relationship with a friend or family member over lack of payment. Instead, check out what the Newstart Allowance has to offer.

You can review the process to determine eligibility here, and don’t forget to check out Centrelink for more resources and financial counselling support.

Whilst there are challenges to access money assistance when unemployed, there are options especially if you have some form of provable cash flow (like dividends or an annuity and in some cases benefits) – Review options here.