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Emergency loans for unemployed people: Options for COVID-19 relief

Even without full-time income, there are loan options.

Justin Cupler

Contributing Writer at Tally

May 19, 2020

Unemployment often sends your finances into a spin as you juggle your bills with the limited income you get from unemployment and other sources. 

With the COVID-19 outbreak sending unemployment rates soaring toward 20%, the market is now flooded with out-of-work individuals seeking employment. This unprecedented global event has put everyone in uncharted waters. 

To ensure your financial security at this time, you may need to look toward a loan, but finding emergency loans for unemployed people can prove difficult due to the lack of steady income from a full-time job. 

Fortunately, there are ways to get emergency loans for unemployed people to weather the storm of joblessness from COVID-19. Below, we’ll explore how to qualify without employment income, where to find these loans and some alternatives to traditional personal loans. 

Qualifying for emergency loans for unemployed people

A stressed couple researches options for emergency loans for unemployed people

When getting a personal loan, there are a few items virtually all lenders need to see, including a decent credit score and steady income. When you're unemployed, showing a steady income poses an issue, but it's not a dealbreaker. 

If you can prove you have regular income from other sources and have good credit, lenders may consider income from places other than an employer in place of pay from a full-time job. 

Here are a few examples of regular income that may help you qualify for an emergency loan while unemployed.

Social Security 

If you're unemployed because of an underlying medical issue or retirement, there's a chance you have or are eligible for regular income from Social Security. 

Though you don't have a job, Social Security income can help you get approved for the personal loan you need.

Unemployment benefits

As a full-time employee, a portion of your paycheck goes toward funding unemployment insurance. When you lose your job through no fault of your own, you may be eligible for various unemployment benefits. One of these benefits includes a weekly paycheck. 

Yes, unemployment benefits cover only a portion of what you can earn as a full-time employee, but they can help you qualify for that emergency loan. 

Alimony or child support

If you collect alimony or child support, this may qualify as regular income and could help you get approved for emergency loans for unemployed people. 

Spouse's income

If you're unemployed, but your spouse is still working, their income can help you get the personal loan you need. There is a catch, though. To include their income, they must be a co-signer on the loan. Having a co-signer can help in other ways that we'll touch on later. 

Pension or retirement income

If you're retired, you may not be gainfully employed, but you may have a regular income. If your company provided a pension that you're collecting, many lenders consider this regular income for loan approval. The same goes for any other retirement income, including 401(k) and IRA distributions. 

Recurring interest

If you have an annuity or other investment account that pays you regular interest, you can use this interest as income on many loan applications. 

For example, if you have a $100,000 annuity that pays an average of 6.5%, you can claim up to $6,500 as regular annual income to get approved for a personal loan. 

Finding emergency loans while unemployed

Like any personal loan, there are plenty of financial institutions offering emergency loans for unemployed people. Below are some common options for getting an emergency loan. 

Bank or credit union

A happy couple talk to their banker about emergency loans for unemployed people

The best option is to work with an institution you're familiar with, so head to the bank or credit union you frequent. 

Because your bank or credit union has worked with you for a number of years, it may be more flexible with its approval terms. There may be some additional requirements to get approved, like opening a certificate of deposit — a savings account that requires you to leave your cash in it for a fixed period of time in return for higher-than-average interest payouts — or auto-drafted loan payments, but this may relax the income or credit score requirement. 

Direct lenders

The internet doesn't lack online lenders. A quick online search will turn up literally thousands of options, including many direct lenders. 

Direct lenders are those who lend the money directly to you. There is no middleman or additional markup on the loan, and you'll make the payments directly to the lender. 

You can apply to these lenders one by one. This can be a time-consuming process for those with bad credit, but if you shop around, it generally nets you better loan terms, including lower interest rates and loan fees. 

Loan aggregators

An online search will also connect you with many loan aggregators. These companies offer no personal loans themselves. Instead, they submit your credit profile to a wide range of lenders in hopes of getting you a loan. 

Once an aggregator locates a loan, it adds a one-time fee, which can be up to 10%, and then offers the loan to you. Once it's all said and done. you will likely never hear from the aggregator again, as you'll make all your payments to the lender. 

These aggregators are convenient because they submit your credit profile to many lenders at once, but this can also result in multiple hard credit inquiries, which can hurt your credit score. Also, that 10% fee is extremely high for something you can do yourself, especially if you're seeking a higher loan amount. 

If you prefer to cut out these pricey loan aggregators altogether, there are a few telltale signs that will let you know you're dealing with a loan aggregator rather than a direct lending institution. First, they will refer to lenders as “lending partners” or something similar. They will also not quote you a loan until they contact their partners. Finally, they will ask you to sign a document agreeing to their fee before they start searching for loans for you. 

Getting emergency loans with bad credit

Getting a personal loan generally requires at least a decent credit score. If you have bad credit, this can limit your ability to get an emergency loan while unemployed. 

Fortunately, there are a few ways to get emergency loans for unemployed people with bad credit. 

Get a co-signer 

A co-signer is a person with a good credit score who signs on the loan with you. Though they may not make the monthly payments, the lender holds them equally financially responsible for the personal loan. 

As we mentioned above, this co-signer can also help you get approved because the lender may consider their income. 

Keep in mind that a co-signer is also responsible if you default on this loan. That means you missing a payment could result in a blemish on their credit report. Consider this before asking someone to be your co-signer.

Lower the loan amount

In some cases, the issue holding up your personal loan approval is the loan amount. If your creditworthiness can't support the loan amount you're applying for, reduce the requested amount and reapply. 

Finding alternatives to traditional loans

If you're struggling to find an emergency loan due to a poor credit score or income issues, there are several alternative loans to consider. These may not be the ideal personal loans you're looking for, but they can help fill the financial void in a pinch. 

Home equity line of credit

A home equity line of credit (HELOC) leverages the equity in your home — the amount the home is worth minus the balance of your mortgage on the property — to give you access to a line of credit for a certain amount of time. 

A HELOC generally has a draw period, which is the amount of time during which you can use the credit line, of 10 years. Once those 10 years are up, the line of credit closes, and you must start repaying what you borrowed. 

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While a HELOC offers you a low interest rate, gives you access to flexible cash and taps into an asset you already own, it's far from perfect for a few reasons: 

  • It puts your home up as collateral, so if you default on the loan, you may lose your house. 

  • It has many of the same income requirements as a personal loan.

  • A HELOC typically requires at least a 680

    , according to

    , so a bad credit score may prevent you from getting one.

Car title loan

A couple refuses to sign a loan with bad terms

A car title loan is another way to access emergency cash using an asset. Instead of using your home equity, like a HELOC, a car title loan uses your vehicle. 

The lender uses your free title — one not tied up by a lien from a bank — as collateral on a short-term loan. Other than requiring a vehicle without a loan or other lien on it, these loans often have minimal approval requirements. 

A car title loan may seem like a great option on the surface, but the FTC warns consumers to steer clear if possible. The annual percentage rates are often in the triple digits, according to the FTC. This high APR is usually due to the additional fees these lenders charge, including up to a 25% monthly charge just for financing the loan. 

If you default on a cart title loan, the lender may also repossess your vehicle, making it difficult to get around and find work. 

Credit card cash advance

A credit card cash advance is a short-term loan issued by your credit card. It's relatively easy to get and requires no credit check or income verification. 

You can get a credit card cash advance from an ATM using your PIN (personal identification number). If your card issuer didn't give you a PIN, you may have to call the customer service number on your credit card or go to the issuing bank to get the advance. 

While a cash advance provides quick and easy access to emergency cash, it comes with a few serious downsides. First, cash advance interest rates are generally at least a few percentage points higher than the base rate for using your credit card for purchases. Also, your credit card may charge a fixed fee of $20 or more for each cash advance.

Payday Loans for Unemployed Persons on Benefits

A payday loan is a type of cash advance that leverages future income. These short-term personal loans give you the cash you need now. If an emergency pops up, and you need to borrow $100 until your next unemployment check arrives in a week, a payday lender can offer quick cash without a credit check.

To get that $100 payday loan, you just write out a check for the amount you need plus the lender's fee — say $15, meaning you would write a $115 check — and the lender gives you the $100 cash or deposits it into your bank account. 

The lender won't deposit the $115 check until the agreed-upon due date, which is usually your next payday. If you can’t afford to make the payment when it's due, the payday lender may agree to roll the loan to your next payday for another $15 fee. 

This may sound convenient, but the FTC warns consumers to use caution with these lenders. The biggest issues are in the repayment terms, as that $15 fee adds up to 391% APR on a 14-day payday loan. The APR continues to balloon each time you roll it over too. 

Consider how emergency loans will affect your future 

A happy couple signs an emergency loan for unemployed people

Emergency loans for unemployed people may be challenging to qualify for, but they're far from impossible. In many cases, the hardest part is determining what does and doesn't qualify as income for the various types of loans available. In most cases, though, any steady flow of incoming cash counts, including less traditional sources like alimony, child support, recurring interest or your spouse's income.

If all else fails, there are alternative cash loans available that require almost no income verification and don't consider your credit history, including payday loans, cash advances and car title loans. You must proceed with caution when considering these options, but with a firm understanding of the risks, you're in a position to make an educated decision as to whether or not these loans are right for you.

As you navigate the uncertainties of COVID-19 and unemployment, remember to look to the future. Consider how your loan choice will affect both your current and long-term financial security. A loan with good terms can provide the support you need to get through the current crisis and see a better tomorrow.