Can you get a loan if you are unemployed?
You might be able to get a loan if you are unemployed, but it will be harder to get and more expensive than if you had a job. Britain’s mainstream lenders, the high street banks, usually require borrowers to be in employment, preferably with a regular salary. Borrowers who are jobless will usually need to go to a specialist lender.
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What loan options are available if you are unemployed?
If you are unemployed you will still have several loan options available including secured loans and guarantor loans. These and other options are shown in the table below:
Loan type |
How it works |
|---|---|
Loan for bad credit |
A specialist loan for people with a low credit score. Small loan amounts and higher interest rates than for people with a good credit score. |
Secured loan |
The borrower needs to put up an asset – such as your home or car –as security for the loan. The asset can be repossessed if the loan isn’t repaid. |
Debt consolidation loan |
A loan to pay off other borrowing, simplifying your debt into one monthly payment. Debt consolidation loans are often secured. |
Pawnbroker loan |
A type of secured loan but the asset used as security is usually low value such as an electronic gadget, games console or piece of jewellery. |
Logbook loan |
A loan secured against a vehicle you own |
Guarantor loan |
Another person (usually employed or a homeowner) agrees to repay the loan if the unemployed borrower defaults. |
Buy now pay later |
Agreed at the checkout, this type of borrowing allows shoppers to pay for purchases in interest-free instalments |
Payday loan |
A short-term loan designed to be repaid within a few weeks. |
Hire purchase |
When purchasing an item, you pay a deposit then take out a loan for the rest of the money, repaid monthly with interest |
Credit union loan |
A low-cost loan from a local financial co-operative run by its members |
What will lenders consider if you are unemployed and need a loan?
Unemployment loan eligibility is dependent on whether the lender is confident you will be able to meet the monthly repayments for the loan.
Lenders offering personal loans for unemployed people will look at the following:
Your credit score |
The higher your score, the more likely you can borrow money and at cheaper interest rates |
|---|---|
Your repayment history |
Reliability in paying bills and debts in the past will increase your chances of a successful loan application |
Your income |
Money from benefits, pensions, savings, shares and investments, or rent from a property will be taken into account |
Your assets |
Homeowner loans involve putting your home up as security for the loan. Pawnbrokers accept a wide range of assets |
The loan amount |
Loan amounts available to unemployed people tend to be much lower than offered to salaried borrowers |
Guarantors |
A family member or friend who promises to repay the loan if you default |
What happens if you can’t pay back your loan?
If you’re unemployed and fail to repay a loan on time, the consequences can include late payment fees, court action and your credit score going down.
- Late payment fees – these can rack up quickly and increase the amount you owe.
- Lower credit score – missing loan repayments will have a negative effect on your credit score and make it difficult to borrow money at affordable rates in the future.
- Repossession – if you have put an asset up as security for a homeowner or pawnbroker loan, this could be repossessed by the lender.
- Court action – failure to repay the loan could ultimately result in a County Court Judgment being issued against your name and/or the debt being passed to bailiffs who can take your possessions to repay your debt.
Can I get a loan from the government if I am on benefits?
If you are jobless and claiming certain government benefits, you may be able to get a loan from the government. You can get information about these loans from Jobcentre Plus.
The following table shows the various loan types on offer:
Type of loan |
How it works |
|---|---|
An interest-free loan from the government available to people on certain benefits such as Income Support or Income-based Jobseeker’s Allowance |
|
An interest-free loan from the government available to people on certain benefits, including Universal Credit |
|
A loan from the government to help people on benefits pay the interest on their mortgage |
|
A loan from the government while waiting for your first Universal Credit payment |
Seek further advice if you are struggling
If you are struggling financially, seek free debt and budgeting advice from one of the following charities. They can help you apply for unemployment benefits, if applicable, and access other financial assistance for the unemployed.
Think carefully before taking out a loan if you are unemployed. Interest rates on loans are likely to be higher if you are unemployed than for those with a job. If you cannot repay the loan, charges can quickly spiral, and you could end up owing a lot of money.
Are there alternatives to a loan while unemployed?
There may be alternatives to a loan that work for you.
Cut back on spending
Examine your income and outgoings to work out where you can save money. Can you cut usage, switch to cheaper contracts or buy from budget retailers, even for a short period? Can you repair something rather than replace it? If you are claiming benefits you may be able to get cheaper ‘social’ broadband or mobile deals.
Separating your money can help with budgeting. Set up a new bank account and pay all your bills and any debts by direct debit from it. The money you have left in your main account is yours to spend as you wish.
Budgeting apps such as YNAB can help manage spending, as can using the budgeting features on mobile banking apps from banks such as Monzo and Starling.
Government assistance
If you are unemployed you may be entitled to government benefits to help you pay for housing and other costs. Try our benefits calculator.
There are also special grants for people in certain circumstances. For example, the Sure Start Maternity Grant could give £500 (or £642 in Scotland) if you have recently had a baby.
If you work in education - or have done - see if you can get a grant from the Teaching Staff Trust. Apply for all the benefits and grants available.
Mortgage payment holidays
You’re not alone if you’re struggling to pay your mortgage. According to the Financial Conduct Authority (FCA), 356,000 more mortgage borrowers could be facing difficulties in 2024.
Mortgage lenders are obliged to help you if you’re struggling - you might be able to extend the term of your mortgage to lower your monthly payments, or make reduced payments for an agreed period.
Call your mortgage lender and see how it can help you.
Credit card
A credit card offers a type of revolving credit with no set repayments above a minimum payment each month. Some offer extended periods of 0% interest on purchases or the ability to transfer a balance for a period with no interest.
A credit card can give you some breathing space as you only need to pay a minimum amount each month - although paying off your debt quicker will result in paying less interest.
Using an overdraft
An overdraft means borrowing money via your current account. Overdrafts are flexible and convenient, but interest rates can be close to 40%. However, some banks offer a portion of overdraft at 0% interest. Get an overdraft authorised or agreed with your bank before you start using it and try not to use an unauthorised overdraft.
Loans for unemployed people: FAQs
Will a rejection affect your credit score?
Being rejected for several loans in a short space of time can have a negative impact on your credit score. Using an eligibility checker can give you an idea of which loans you might be accepted for before you apply.
What if you are unemployed and have a bad credit score?
If you are unemployed and have a poor credit score your borrowing options will be limited. Improve your credit score by being on the electoral roll at your current address and paying bills and debts on time.
Summary: Getting a loan while unemployed
It will be more difficult and expensive to get a loan if you are unemployed than if you had a job. This is because lenders see unemployed borrowers as high risk.
Borrowing money when you’re unemployed can also add to your financial problems as debts can quickly mount up. So explore other options, such as debt advice and claiming benefits, before taking out a loan.
If you are a member of a credit union, it may offer you a cheaper loan than you’d get from a commercial lender. If you’re claiming government benefits, you might be able to get a loan from the government.