You may be caught unawares by emergencies at any time, and the nature of the emergency decides how much money you need to tackle it. Despite stashing away money for a rainy day, you may find that it is not enough to cope with the unexpected. As a result, borrowing is a last resort. Online lenders are more than willing to lend you a helping hand compared to traditional lenders. Still, because they are not giving away money, they also use the criteria to determine your repaying capacity.

In order to qualify for a loan, you must have a decent credit report and a stable income source. Lenders check a three-digit credit score, but this is not the be-all and end-all, so most lenders make their lending decisions based on other factors, too. It means you have a chance to get the nod for a loan despite a poor credit history.

But what if you are laid off and you find yourself in need of money? On the other hand, your credit score is also not up to snuff. Can you get a loan then? If so, will they be so expensive?

Getting a loan when you are out of work is hard but not impossible

When you are unemployed, getting the green light from a lender for your loan application is quite challenging. Of course, no lender is in a position to lend you money when they know you do not have an income source to keep up with payments. However, having a stable income source does not necessarily mean having to work a full-time job.

Lenders will evaluate your financial condition to see whether you will be able to settle the debt in addition to meeting other regular expenses. You must have an income source to prove to your lender that you will get by. These income sources are called passive income sources. When you are out of work, you may show your lender that you earn money from side gigs such as freelancing, a part-time job, rental income, babysitting, pet sitting, and lawn making – to name a few.

Your lender would give money based on the side gig. Loans for the unemployed are granted based on your side gig income. It is likely that you do not have a side gig when you lose your job. In that situation, your benefits will be considered your income. You should apply for unemployment benefits as soon as you lose your job. If you have been receiving other benefits like childcare allowances, you can also use them as your income.

Bear in mind that these loans carry very high interest rates. You will be charged interest as high as the interest on very bad credit loans from direct lenders in the UK with a no credit check. If you fail to pay off the debt, not only will you end up with a very bad credit rating, but you will also have to face dire financial consequences.

Lenders generally make a decision after a perusal of your credit report and income sources. Still, it is your responsibility to ensure that you do not borrow more than your affordability to pay back.

Borrow from family or friends

If you are in need of urgent money, you can get help from your friends and family. Things are not so complicated when a spouse is earning money, too. They will be responsible for managing all household bills until you land a new job.

If you live on your own, you can ask for some money from your parents. They should not refuse you if it is a paltry sum. However, make sure that they have an abundant supply of cash. They may be willing to go to great lengths to help you out of love, but this should not affect their own finances.  

You can also get some help from your friends. However, the borrowed sum must not be too high. While borrowing money from friends, you should ensure that you set a repayment date you both agree upon. If possible, you should pay a bit extra money on top of what you borrow.

Grab some work

If you do not have an income source, you should try to find one. A lot of side gigs can be obtained if you ask your neighbours whether they need some help with lawn making, babysitting, or pet sitting.

Check freelance websites where you can get multiple projects every day. You simply have to create your profile and set yourself apart from the crowd so clients become interested in using your services.

Is it wise to take out a loan when you are out of work?

There are some direct lender loans to help tide you over when you are laid off, but financial experts suggest against borrowing money in that situation. Borrowing money during unemployment is like skating on the thin ice.

Interest rates for these loans are charged very high. It is likely that you do not manage to arrange money to pay off the debt. Missing payments will make it even harder for you to deal with debt. Soon, you will find yourself buried up to your neck in debt.

You should take out a loan when you are redundant, but only when it is urgent. Make sure you do not use money for anything you can put off. If you still need money for an urgent reason, you should:

·        Do the market research to pick the most affordable deal. However, remember that very few lenders provide loans to the unemployed, so you do not have much scope.

·        Arrange a guarantor if possible. The guarantor must have a good credit rating. As they reduce the risk of a lender, chances are you can borrow money at slightly lower interest rates.

·        If you have a spouse, they can take out a loan in their name. Interest will be quite low as they have a full-time job and a good credit rating. They can also serve as a guarantor.

The final word

 It is not easy to qualify for a loan when you are out of work, but a few lenders may lend you money if you have a passive income source. You should always consider your repaying capacity before borrowing money.

Use alternatives like friends and family when you are in need of money, and make sure that you borrow only when it is urgent.