Best Loans For The Unemployed
Finding and securing an unemployment loan can be a difficult proposition for those who are unemployed or have very little income. Life isn’t free and it sure isn’t easy. Providing you, or your family, with the basics in our society can be a financial hell when things turn upside down in an emergency.
Sometimes we just need an extra bit of cash to get back on track, but the problem is finding a suitable lender. Let’s look at loans for the unemployed and how to get different types of loans while jobless before you apply.
Common Problems For Unemployed People Searching For Loans
Under normal circumstances, (i.e. when employed), the process for obtaining a loan from a source of financing is more or less straightforward.
The individual in question decides how much money that they need to borrow, determines how much disposable income that they can put towards interest and principal payments, finds a source of funding that fits their needs, and gets the loan.
This process is easy for those already working because one of the first factor that lending institutions look at when deciding if, and how much to lend to a person, is their ability to repay the loan.
Since people that are unemployed by definition have no income, this can obviously be a huge red flag for most of the mainstream sources of lending.
The situation then becomes a catch-22: The unemployed person needs income to qualify for a loan that can help to get them past their financial difficulties and find work or start a business, but without a job or business to provide that income, they will find it very difficult to obtain that loan. It’s a tough situation.
In many cases, those seeking such loans may be looking to get an emergency loan in order to:
- Fix or purchase a car for transportation.
- Buy clothes or equipment that may be needed for work.
- Pay for schooling that will enable them to upgrade their skill set and get a job.
- Pay the rent and utilities so that their living situation is stable enough to allow them to find and hold down a job.
- Money for Christmas.
These issues, while different, all follow a common theme: Unemployed people often need financial resources in order to find ways to get themselves out of relative poverty and back into the workforce.
Different Types Of Loans For The Unemployed
Fortunately for those who find themselves struggling in situations like those described above, there are indeed a wealth of resources available to assist them in getting their lives back on track and on schedule.
1. Loans For Those Receiving Unemployment Insurance Payments
If the person in question has lost their job for no fault of their own, they will in most cases be eligible to receive unemployment insurance payments from the state in which they live. The amount that is given to individuals varies by state, but is usually a decent percentage of their former salary.
In many cases, this amount will not be enough to cover all of the household's expenses. The good news is that many lending institutions consider unemployment insurance payment to be income, and if the person applying for the loan has a half-way decent credit history, many lending establishments will extend a loan to the individual in question.
It may not be a huge amount, but it may be just enough to help the person to get over the hurdles that unemployment can create.
2. Loans Secured By Real Estate Or Other Property
Many modern lending establishments are more than willing to extend credit even if the individual seeking the loan has no income coming in. As long as the person can provide some form of collateral, these lenders will frequently provide loans for the unemployed people.
In most cases, the amount of credit that is extended will be proportional to the value of the property being provided as collateral.
For example, a person seeking to cash in on some of the equity in their home will usually be able to borrow more that a person who is using their motorcycle or car as a source of collateral.
Another similar method involves getting a loan by using accumulated life insurance monies as a source of collateral. In most cases, once this loan is paid back the credit worthiness of the person is re-instated.
People who seek to use their property as collateral in this way should consider the situation carefully before taking the plunge. If they end up defaulting on some of their payments, their home or property is usually subject to having leans placed on them, which in the end can mean losing the property.
Therefore it is paramount to count the cost of the loan before proceeding with it.
3. Use Of Co-Signers
If the unemployed person has family or close friends who have good credit, lending institutions are usually more than willing to extend a line of credit if these people are willing to co-sign the loan application.
This can be a great life-line, but borrowers should make sure that they will be able to repay the loan in time. If not, the co-signer will become liable for the outstanding balance, and this can obviously cause financial difficulties for friends or loved ones.
4. Use Credit Cards
Credit cards sometimes have high interest rates, but in a true emergency they can be a real lifesaver. They can be used as emergency loans for the unemployed If the individual needs quick cash to help them make ends meet or facilitate new employment, this is an option that should not be overlooked.
Cash loans for unemployed people, in the form of a credit card cash advance, are also a good idea, but must be looked at carefully.
If this option is taken, borrowers should be fully aware of the 'fine print' requirements from their credit card companies. They should know when payments are due, what the minimum payments will be, and what the penalties of late payments are.
Being armed with this kind of knowledge can help them from doing further damage to their credit scores, thus preserving their credit history for the future.
5. Retraining Loans
Under certain circumstances, many state and federal governments offer retraining loans to those that qualify. For example, according to the website Opportunity.gov, the U.S. government is prepared to extend Pell Grant loans of up to $5,500 for job retraining purposes to individuals who are receiving unemployment benefits.
In addition to this, many states and municipalities will also provide retraining funds. When added up the amounts can be quite significant.
6. Micro Lenders
Usually large banks have very little interest in lending funds to those who may be on the lower end of the income scale or those with bad credit. People that are unemployed fit into this category.
In response to this, many non-profit organizations have come into being with the express purpose of providing small and interest free loans to people that are in need of financial assistance.
How Micro-Lending Works:
These kinds of loans are known as micro-loans because the loan amounts are usually much smaller than what banks usually offer to people. In many cases, loans of this kind lie in a range of between $250 on the low end, to about $5,000 on the higher end.
Micro-loans in amounts up to $50,000 are not unheard of. Getting a loan of say $3,000, if invested wisely, can help a person to turn their lives completely around.
How does one go about getting one of these amazing micro-loans? The process is fairly straightforward. The U.S. Small Business Administration, or the SBA, is in the business of providing micro-loans to small business owners. This is a good thing overall but like most bureaucracies; the process can be painfully slow and impersonal.
What would be a better option? There are quite a few person-to-person micro-lending sites, one of the more prominent being known as Kiva. The process couldn't be any simpler or user friendly. Kiva has two kinds of users, borrowers and lenders.
The person seeking the loan, the borrower, creates a profile identifying themselves, their financial situation, and the amount of the loan that they are seeking.
At this point, one of the many lenders that is affiliated with Kiva peruses the listings of borrowers, picks one that they would like to sponsor, and voila! A loan is given, and the repayment terms are usually pretty generous.
What is the Best Loan For The Jobless?
Payday loans and quick term loans are not likely to be a solution because of their high interest rates and fees. However, if you need someone to approve a loan for you, it might be an option in an emergency.
It all depends on each person’s situation and resources available in their area. For the most part, those who are unemployed should focus on funding sources that are easy to deal with, require little or no red tape, don't require credit checks or income, and have great repayment terms.