Loans For the Unemployed

Scruffy unemployed man passed out on the couch in his underwear, surrounded by cigarettes, junk food, and beer bottles.
When you’re young and just starting out, your plans are almost always, well, unrealistic at best.  The reason that they are so unrealistic typically is because they all require a lot of money, money that you are likely to think you can get from a loan.  Likewise, there are a bevy of things that can happen to an individual and a family which are unexpected.  In these cases, financial stress can reach unbearable points.  One of the most difficult things to handle is the loss of your job, especially if you have a family to take care of.  In either case; it may be tempting to look for loans for the unemployed.  Whether you are just starting out or just need to pay for basic necessities, here we will look at how loans work, in what cases you may want to consider a loan even when unemployed, and what your best options are.
 
So how exactly do loans work?
 
A loan should be so simple; somebody needs money and finds someone to give them that money with the understanding that it should be repaid.  Unfortunately, while that is the absolute most basic definition of what a loan is, that is not exactly the way it works.  First, let’s just say this up front; if this sounds like that economics class in high school, that is because it basically is.

 
Let’s just get this out of the way now; the unfortunate reality is that if you are currently unemployed, even if you are just starting out, traditional lenders, such as your local bank, are highly unlikely extend a loan to you.  It may seem unfair, but this is the harsh reality.  So there are two items to dispense with; why and what can you do to get a loan.
 
Here is the deal, lenders have a charge for lending you their money.  This charge is called an interest rate and it is based on a number of factors but chief among them is your credit score.  Your credit score tells a lender how likely you are to repay your debt.  Your credit score and your employment status are the two things that your lender will look at to determine whether or not they will lend to you.  So, if you don’t have a job or have a low credit score, traditional lenders will most likely not make any significant loans to you.
 
So, what do I do now?
 
Again, it depends on your situation and what you are in need of. If you are just starting out, there are a couple of things to keep in mind.  The first is this; evaluate why it is that you need the loan and determine if it is really necessary.  There are some perfectly legitimate reasons that you may need a loan as a young person; perhaps you need a car to get a job or desire to start up your own business, but outside of these, it would be strongly in your best interests to just wait.  Renting a house or apartment for a few months or years rather than buying right away will give you a chance to secure employment and boost your credit score.

 
If you find yourself unexpectedly unemployed and need some short term relief, waiting really isn’t an option.  There are however some steps that you can and should take before attempting to borrow funds. Explore your options for repayment on any current and outstanding loans you are currently paying on.  To do this, you will need to contact your loan servicers and ask if there are any income based repayment plans for your loans.  If you have student loans from college, most lenders will have some type of income based or graduated repayment plans. Depending on your institution, you could have your payments reduced to literally nothing each month.  Keep in mind that you will in all likelihood still incur interest that you will have to pay eventually, but the important thing is to reduce your monthly payments until you can find employment.  If you own your home, it is unlikely that your lender offers anything like this on your home loan, but it never hurts to ask. Secondly, take a look at your current monthly budget and see where you can tighten the belt a little.  If you don’t have a budget to look at, you may want to consider sitting down and making one (there are hundreds of tools online to help you create a family budget).  While you are looking at your budget, consider also transferring funds from any savings accounts you may have.  You may have been saving up for that family vacation to Disney, and while your kids may be disappointed, if in order to pay your mortgage in the short term means that you have to take some money out of the Disney trip fund, your kids will understand one day. A final option to explore is filing for short term assistance from the government. 
 
There are several options here including filing for unemployment benefits to potentially drawing on your Social Security.  There is often a stigma in filing for these types of benefits; many people do not want to appear dependent upon anyone else, or there is a fear of what others may think.  As long as you are actively seeking a job and not planning to stay on these programs forever, there is no shame in using whatever tools you have at your disposal to make things work for you and your family.  You can contact your local government office to find out more on this process online.
 
But what about loan options otherwise?
 
If you have looked into all the options above and still are a little short, yes, there are loan options for you.  Again, if you are young and just starting out, my advice is NOT to pursue these options.  They should only be used as a last resort in emergency situations.
 
Why?  Why am I so vehemently trying to steer you away from taking out a loan if you are unemployed?  The answer is pretty simple really; interest rates.  Remember we discussed credit scores and interest rates earlier?  Credit scores along with your employment status show the lender how much risk is associated with lending to you.  The higher the risk involved, the higher the interest rate, the lower the risk, the higher the interest rate.  If you are currently unemployed, you are by nature an incredibly high risk to a lender and this is why traditional lenders such as banks won’t even consider lending to you.  What this also means is that the lenders who are willing to lend to you will likely charge incredibly high interest rates.  Additionally, they will also not lend you any funds in excess of $1,500 to $2,000; again, they view this as a highly risky transaction.
 
I am not going to recommend any specific short term lenders who will issue loans for the unemployed for a few reasons.  First, there are a lot of these lenders out there and many will vary by geographic region.  Secondly, while I understand basic, personal finance economics, I am not a licensed financial advisor, so when it comes to specifics, I tend to defer to the professionals.  Lastly, I do think that these types of loans are, as I said earlier, to be used in absolute emergency situations only.  So while I won’t go into any specific recommendations on lenders, I can provide some things to look out for.
 
First, as with anything in financial matters, do your research.  I realize how difficult this may be, especially if you are under time constraints for some reason, but failing to do proper research could result in you getting scammed.  Secondly, pay attention to the terms of repayment.  Know when you need to start repayment, know the interest rate, know the payment schedule, know all your options if you can.  Finally, only take out as much as you need.  When I was in college, I had to take out a couple of private loans to finish out my financial aid package.  In my youthful ignorance, I decided to take out a little extra to help cash flow situation; this was a big mistake.  I am still paying on that extra $500 or whatever I took out and it has been almost 10 years now.
 
I know that it is hard to be patient when you are young, and I also know how dire times can get when you have a family to support and unfortunately lose your job.  In the end, be patient, be diligent, and be financially smart, it will definitely pay off in the long run.

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