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Be very careful when taking out loans when unemployed. The risks to your long-term financial health are acute. Therefore, reserve this step for crises only.
Plus, during the Covid-19 pandemic, the federal government is offering a variety of loan options free of costly origination fees – and sometimes interest too! Consider these alternatives first, if you are out of work because of the virus.
If you still need cash for today or tomorrow, private lenders might make a fast approval by securing future unemployment benefit checks from your state. Choose between personal loans, cash advances from credit cards, and payday contracts from online companies.
Emergency Loans When Unemployed
Unemployed people should only attempt to take out a loan when they have a true catastrophe, and they have exhausted all the alternatives noted in the section below.
If you need cash now to pay rent, hire a lawyer, or repair a car, then borrowing money may be your only choice. Just remember that you may have to repay the lender with interest while still out of work, or suffer the negative consequences.
Personal loans with monthly installments are most attractive to people without a job because the payments are much smaller. However, state employment benefits typically have a time limit of twenty-six weeks or six months – although some may continue longer during the Covid-19 crisis.
Therefore, expect the term (repayment period) to be much shorter than six months. Lenders know that your financial capacity could diminish drastically after that point. Plus, you could have been collecting for some time already.
Request a personal loan (Affiliate Link) and increase your chance of a quick approval by keeping the principal amount small and the repayment terms short. The online form will ask several questions you should prepare to answer.
- Income Source: Unemployed
- Time Employed: Not Employed
- I Get Paid: Weekly
- Employer Name: N/A
- Employer Phone: N/A
- Monthly Gross Income: 3 times the weekly amount
Based on your answer to the income source question, the lender knows not to perform a job verification. However, be prepared to provide written validation from the state of your weekly benefit amount and time remaining.
Payday loans are often the only viable alternative when you are unemployed and need emergency funding right away. The small-dollar short-term contracts fit with how the state government pays out the compensation.
If approved, the lender will immediately advance a portion of your next benefit check and subtract an origination fee of about 15%. For example, they might fund $85 and expect payment of $100 one to two weeks later.
Trouble quickly brews if you fail to repay the full amount when due – especially for single mothers. Many people roll over their payday loans and incur an origination fee a second, third, fourth time, and so on.
Payday loans are the last resort during times of distress when you have no job combined with a bad credit history. The steady government check gives you something to borrow against without the need to pull a copy of your consumer report or check your FICO or Vantage score.
A record of delinquency on your consumer report is a common side effect of losing a good portion of your income. It is too easy to fall behind on obligations set in motion while you were working in the past.
Setting up an auto-draft from your bank account can allow you to get cash quickly without a traditional credit check from Experian, Equifax, or TransUnion.
No Bank Account
Payday loans are also the last resort during urgent situations when you have no job or bank account to support deposit and payment transactions. Fortunately, many states will transfer your weekly benefits directly to a prepaid debit card instead.
When completing the online application form, you need to enter the debit card number and PIN rather than a bank routing and account number – which you do not have.
If approved, the lender will transfer the cash to the debit card, which you can then use right away to cover your critical expense. Be sure to repay the full amount after your state replenishes your benefit to avoid a nasty debt spiral.
A cash advance from an existing credit card could be the surest way to get money the same day for an emergency need. Of course, you will need to have sufficient open-to-buy for this option to work.
Open-to-Buy = Account Limit – Current Balance
Your credit card company should have no idea that you are jobless and collecting unemployment compensation. Therefore, you can get a cash advance within hours by going to a local ATM – provided your account is in good standing.
Keep in mind that cash advances are an expensive way to borrow money because the credit card company treats these transactions more harshly than purchases.
- Origination fee upfront of 3% to 5%
- No grace period on interest accumulation
- Higher Annual Percentage Rate (APR)
Origination Fee-Free Loans for Unemployed
Finding loans utterly free of upfront fees, interest charges, and repayment obligations when unemployed through lay off or furlough is usually an unrealistic expectation, but it never hurts to ask.
During the coronavirus pandemic, the world works differently thanks to the temporary benefits baked into the CARES act. Take advantage before the provisions expire.
Each person has three possible cost-saving opportunities when borrowing money.
- Origination fees are a percentage of funds deducted at the disbursal
- Interest charges accrue over time as you use other people’s money
- Principal payments are sometimes waived as in a grant (rare)
The Coronavirus Aid, Relief, and Economic Security (CARES) provides many unemployed people with gifted stimulus money and the ability to make cost-saving adjustments to existing loan arrangements.
The temporary government relief allows you to free up resources for other needs. Research each opportunity before borrowing from a private lender.
- Stimulus checks up to $1,200 per person with an adjusted gross income below specific thresholds
- A four-month enhancement of benefits (extra $600 per month above normal state levels)
- The Economic Injury Disaster Loan Emergency Advance works like a grant (you do not have to repay the money) for self-employed individuals and independent contractors (but is oversubscribed)
Most frequently, you can avoid paying origination fees (up to 15% in some cases) by not borrowing money from a private lender. Instead, take advantage of modifications to any existing student loan, mortgage, and 401K lending parameters.
The CARES act also provides for automatic suspension of payments and interest accumulation on federal student loans through September 30, 2020.
|Until 9/30/20||After 10/1/20|
|Steps||Automatic||Complete unemployment deferral form|
The CARES Act also loosens the rules temporarily regarding 401K hardship withdrawals and loans, making it easier for the jobless to tap into their retirement savings for emergency cash.
|During 2020||2021 & After|
|401K Withdrawals||No penalty under $100K |
Pay taxes over 3 years
|10% penalty |
Pay taxes in 1 year
|401K Loans||Lesser of 100% or $100K||Lesser of 50% or $50K|
The CARES act also provides relief options for federally backed mortgage loans for laid off homeowners experiencing financial stress due to the coronavirus.
- The servicer cannot begin or complete a foreclosure procedure against you during the sixty days counting from March 18, 2020
- You have the right to request forbearance for 180 days, and a 180 extension without extra fees, penalties, or additional interest
Forbearance means that you pause payments temporarily. You must repay any missed or reduced payments in the future with interest.
Cutting unnecessary expenses is another critical step to take to free up resources while unemployed. Please do not take out a personal loan without eliminating all of your unneeded spending from your budget first.
Why incur origination fees and interest charges and go into debt when you may not have to? Besides, you are in control of what you spend.
For example, take a close look at your latest credit card or bank statement to identify and then cancel subscription services you could do without while jobless.
- Streaming TV: Netflix, Amazon Prime, Hulu, Sling, Disney, etc.
- Streaming Music: Spotify, Apple, Tidal, YouTube, etc.
- Software as a Service: Dropbox, Office 365, G Suite, etc.
- Meal Kit Delivery: Freshly, HelloFresh, Blue Apron, etc.
- Diet Plans: Nutrisystem, Jenni Craig, Weight Watchers, etc.
- Other: Gym memberships, New York Times, etc.
Working as a freelancer or independent contractor is a viable way to make extra money while unemployed. Plus, it could be a far safer option than taking out a payday loan and incurring debt you may never be able to repay.
Research the laws in your state before starting your part-time side gig to supplement your income. Some states will allow you to earn a small amount each week while still retaining a portion of your government benefits.
For example, California rules permit you to add the first 25% of earnings.