When you couple unemployment with the financial demands of an emergency expense, it can feel like a double whammy to your bank account. And the worst part is, joblessness only perpetuates the need for extra cash.
The Associated Press reports that the unemployment rate dropped to a four-year low of 7.7 percent in November. But with fiscal cliff uncertainties looming on the horizon, the National Association for Business Economics expects unemployment rates to remain steady in 2023.
If you anticipate being saddled into this jobless rut while contending with bills you can’t pay all on your own, there are a few things you should know about personal loans with unemployment. Without the right preparation or borrowing savvy, you risk going down a treacherous debt path.
Personal Loans and Unemployment: Know Your Limitations
Unfortunately, lenders tend to view unemployment as an added liability when looking at your qualifications.
“Lenders decide what is required to underwrite their loans and require a source of regular income or assets as collateral,” says Gregory Grier, CEO of USALoansNearMe. “Employment is almost always required to evidence ability to pay and affordability.”
Grier adds that these requirements also extend to lenders who deal with higher risk borrowers on a daily basis. While short-term and car title lenders may look past a credit check, even they won’t ignore the need for an income.
Dealing with Financial Strain During Unemployment
A lack of income may be a huge roadblock, but something like a leaky roof or medical bill won’t stop for anything. Before you start to look for any sort of high interest personal loan that skirts around unemployment, it’s important to exhaust the alternatives in the throes of financial uncertainty.
Jon Snyder of SHM Financial asserts that unemployed individuals can still approach borrowing—just from a different perspective.
Don’t be afraid to consider the “family and friends” route.
“Be honest with loved ones about your financial stress,” says Snyder. “Don’t live a financial lie or buy gifts you can’t afford. Loved ones will appreciate your honesty, and the financial pressure will ease.”
If anyone is willing to give you a break during a rough patch, it’s likely to be friends and family. What’s more is they may be more lenient about how much interest they charge and allow you more time to pay it back.
Approach a loan from loved ones like a traditional bank loan.
“Write down the terms and insist on a nominal interest rate,” says Snyder. “This keeps personal feelings at bay and will encourage the borrower to repay in a timely manner.”
It’s important not to take any generosity for granted; otherwise it may become all too easy to fall into bad payment patterns. It may even diminish the incentive to look for employment to help you secure another traditional loan in the future.
Part-time income is better than no income.
“Many of the unemployed today are being much more open minded,” says Grier. “Not giving up their goals or aspirations, but they are taking part-time positions to learn new, basic skills and developing relationships.”
Taking a less than desirable job now doesn’t mean you have to be stuck there for good. Using it as a springboard for gaining experience will not only keep you at least partially afloat financially, but it may also afford you the ability to borrow when the emergency need arises.
Considerations for All Borrowers
Whether you’re secure in your career, worried about potential unemployment, or dealing with it front and center, all consumers should heed the same personal finance advice.
“Like all loans, both secured and unsecured, you must consider how you will repay your lenders,” says Wilson Hanson.
Coleman advises to take a look at your personal situation to determine your borrowing needs: can you use your unemployment benefits instead? Do you have solid job prospects and simply need a loan to bridge a financial gap?
Before you bank on hunches, determine the budget you’re working with. A short-term personal loan not only requires repayment of the principal amount, but interest based on how much you borrow. A quick personal loan may help you face the uncertainty of financial emergencies, but don’t add to the burden by borrowing unemployed without understanding the long-term implications.