Loans For Unemployed People: Proving Income With Pay Stubs
November 21, 2023
Unemployment is trickier and more challenging in today’s economy. The prices of basic needs are skyrocketing, and finding a new job can take a while. As such, learning about the different loans for unemployed people for which you can potentially qualify is worth looking into.
Securing financial assistance in the form of loans while you’re unemployed helps you manage your daily expenses as you seek new job opportunities.
If you want to know the different types of unemployment loans and how to qualify, this article will guide you.
Key Takeaways
- The types of loans for unemployed individuals include unsecured loans, guarantor loans, family loans, home equity loans, specialist loans for bad credit, buy now, pay later, and co-signed loans.
- Unemployed debtors must have a credit score of at least 580 or higher to qualify for a loan.
- Aside from collateral and government-sponsored benefits, pay stubs are also valid documents that help prove income for freelancers and unemployed individuals applying for loans.
How Can Unemployed People Get Loans?
Unemployed people can get loans or qualify for one by having a good credit record. Since unemployment means putting a halt on your regular stream of income, lenders consider a credit score that ranges from 580 to 669.
Securing a good credit score entails paying your bills and other debts on time and maintaining a flawless credit report, particularly if you have multiple credit card accounts.
Note that you may also be asked to prepare valid documents to help explain your current financial status or prove your limited income to potential lenders.
On the other hand, inconsistencies in your credit history and financial records, such as unpaid debts, overdue payments, a closed credit card account, and a limited credit line, likely decrease your chances of getting considered for a loan.
6 Best Types of Loans for Unemployed People
The six best types of loans for unemployed individuals are as follows:
#1. Unsecured Loans
Unsecured loans do not require collateral and have faster approval rates than secured loans. Typically, lenders only look at your credit score to check your qualifications for this type of loan.
Examples of unsecured loans are payday, personal, and student loans.
While unsecured loans have fewer restrictions and potentially grant quicker access to the funds you need, they also come with higher interest rates that counterbalance your capability to repay the loan amount in full.
#2. Guarantor Loans
Guarantor loans involve having a relative, friend, or even a former colleague ‘guarantee’ the coverage of your unpaid debts once you default on your loan. This type of loan is suitable if you have not built your credit history.
Loans for unemployed people that are covered by a guarantor are also ideal if you have a poor credit record due to missed repayments or multiple defaults on different credit card accounts. It is important to note that you may receive the funds after your loan is approved.
Sometimes, there is a so-called two-week ‘cooling-off’ period, wherein the lender first sends the funds to the guarantor. In response, the guarantor takes the time to look at the loan agreement and decide whether to give the money to the borrower or return it to the lender.
#3. Family Loans
If you prefer unemployment loans without job verification, try borrowing money from a family member. Family loans may or may not involve a contract but have higher chances of charging lower interest and disbursing the loan amount instantly.
However, you must also consider your relationship with the family member to whom you plan to loan money. Trust is essential to a loan agreement, whether you are borrowing from a lender or a relative.
If your family loan comes with a contract, describe how you plan to repay the loan amount and interest. You must also enumerate the repayment schedules and provide collateral if you intend to borrow a large sum.
#4. Home Equity Loan
A home equity loan is an ideal loan for unemployed people with enough home equity or a minimum of 15% to 20% equity in their house.
Qualifying for this type of loan yields two possibilities:
You may get approved for a home equity loan. A home equity loanis just like any other regular loan, wherein the lender gives you the total loan amount, and you must repay the debt plus interest rates in fixed installments.
- The second possible option is to get approved for a home equity line of credit, where you only borrow money as needed. At the same time, you only need to pay interest on the borrowed amount.
#5. Specialist Loans for Bad Credit
Aside from loans for the unemployed, there are also loans for bad credit. You may earn income through different resources, like a freelancer, but you need a better credit record.
Some lenders focus on offering loan agreements to assist borrowers with a not-so-favorable credit history. However, lenders may be stricter in monitoring your repayment.
Also, you may be drowning in more debt if you cannot repay your dues.
#6. Buy Now, Pay Later (BNPL)
A Buy Now, Pay Later credit setup allows you to purchase goods and make payments later. It involves short-term installment loans with zero interest rates.
To get approved for BNPL financing, you must ensure that you are purchasing goods from a participating retailer. You must also pay a small down payment, typically 25% of your purchase.
Upon fulfilling the down payment, you must fulfill the fixed payments of the rest of your purchase amount within weeks or months.
Buy Now, Pay Later loans get approved fast and do not affect your credit score, provided that you repay on time and in full.
#7. Co-signed Loans
Co-signed loans are similar to guarantor loans. The only difference between co-signers and guarantors is that the former is responsible for covering every repayment missed by the debtor. Meanwhile, the latter only covers the loan if the borrower defaults on the debt.
Co-signers must have a credit score of at least 670, a reliable source of income, and an overall excellent financial record.
Unfortunately, failing to repay co-signed loans significantly affects the debtor and co-signer’s credit history. As such, co-signed loans for unemployed people often come with twice the risk.
How to Qualify For a Loan While Being Unemployed
To qualify for any of the loans for unemployed people listed above, consider the following alternative documents:
- Alimony and child support. Alimony is a court-ordered payment awarded to a spouse as part of an agreement following a divorce or legal separation between married or common-law partners. Child support is a sum that a noncustodial parent must provide to cover a child’s basic needs.
- Disability payments. Also called disability benefits, they are a type of monthly benefit granted by the Social Security Administration (SSA) to individuals with a medical condition that falls under the SSA’s list of qualifying disabilities.
- Pension. It refers to regular state payments made to retired individuals or people who have reached retirement age. Persons with disabilities and widows also qualify for allowances.
- Unemployment benefits. It is a type of financial assistance granted by the federal and state governments to individuals displaced from their jobs due to a retrenchment or a business closure.
If you are applying for a car loan or a mortgage, you may be required to provide an asset as collateral, such as:
- Car
- Equipment or machinery
- House
- Retirement or savings account
- Vehicles
Using Pay Stubs As Proof of Income For Getting a Loan
What if you recently lost your job and still have copies of your last pay stubs? Or, you may be a freelancer earning just enough through part-time work. You can use your pay stubs as proof of income to boost your chances of qualifying for your loan.
Pay stubs enumerate your gross and net income and reflect your withheld taxes. Banks and lenders usually require paychecks or pay slips from the last three to six months.
By providing recent copies of your pay stubs, you can attest that you earned money from a reliable source and that you genuinely need the cash due to a financial emergency.
Use a Pay Stub Generator
Using a pay stub generator helps speed up the time it takes to reproduce previous copies of your paychecks.
Our pay stub generator is an easy-to-use online tool that uses templates with essential fields such as your hourly rate, gross and net pay, federal, state, and local taxes, FICA, and FUTA taxes.
It takes a few minutes to create a pay stub with our online generator, and you can also take advantage of our built-in calculator feature to ensure accurate calculations for your earnings and taxes.
The best part about using our pay stub generator is that you can download a PDF copy of your pay stubs and store them securely for future use.
3 Main Advantages of Getting a Loan While Unemployed
Believe it or not, despite the financial hurdle brought by losing your job, securing loans while unemployed also has its advantages, such as:
- Get quicker access to funds. Some lenders give more consideration to borrowers going through a financial emergency or crisis. As such, you can get approved for a loan more quickly once you have successfully proven your unemployment status.
- Create more leeway to adjust your budget. When you qualify for unemployment loans or benefits, you get the adjustment you need to reorganize your budget and expenses and ensure you can stretch your money until you land a more stable source of income.
- Focus on improving your credit score. Since your credit score becomes an even more crucial factor in securing loans when you’re unemployed, you may be prompted to work towards maintaining a good credit history or making more sensible spending habits.
3 Notable Downsides of Getting a Loan While Unemployed
If there are advantages, then there are also notable disadvantages to securing loans while unemployed, such as:
- High-interest rates. You may qualify for unemployment loans, but there is no assurance that you can get a considerably high amount of money. If your credit score could be better, then you may end up with a lower loan amount and high interest.
- Increased financial burden. Speaking of high interest rates on your loans, you can shoulder more debt and heavier financial responsibilities if you fail to repay your loans on time.
- Broken trust. One of the biggest risks of getting loans while unemployed is how your lack of a stable income affects your commitment to repay your loans. Inconsistencies in repaying your debts could permanently sever your ties with your guarantor or co-signer.
Final Thoughts
Whether you voluntarily resigned from your job or were displaced by your last employer, the different loans for unemployed people offer a safety net that lets you afford your basic needs and have sufficient funding for your next job search.
You may face stricter requirements to qualify for your desired type of loan or end up with high interest rates, but the key is to be responsible with your finances.
Make sure to repay your debts promptly and commit to the loan agreement between you and your lender to avoid facing additional hurdles in your finances and daily endeavors.
Related Articles
Is Unemployment Taxable? Tax Treatment on Unemployment Benefits Explained
