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Can you get a loan if you are unemployed?

If you are not in regular employment, you will struggle to get a standard loan from a high street lender. A specialist lender may be able to help you, but borrowing may come with higher costs.
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Getting a loan when you are unemployed

Lenders are hesitant to approve unemployed applicants because they see you as less likely to be able to meet repayments. Not being employed means you are unlikely to have a regular income, which is what most lenders would expect you to use to pay back the loan and interest costs over time.

High street lenders will likely reserve their best products and interest rates for applicants with strong credit histories, especially if they have proven to be good borrowers in the past. Being unemployed will lower your credit rating, making you a less appealing potential borrower.

Can I borrow money if I am unemployed?

Being unemployed doesn’t mean you will have no access to loans. Some lenders specialise in lending to applicants who are not in regular work or have a poor credit history. These loans will not have the best interest rates, though. This means missing repayments could quickly land you in significant debt.

Providers who do lend to unemployed applicants will not be big names, which can be worrying to customers. You might not be comfortable borrowing from a lender that you have not heard of or have a financial relationship with.

Some of these companies may even be ‘payday’ lenders. You should avoid these businesses. Their interest rates are sky high, so your debt will spiral very quickly if you do not repay the borrowed amount within days. 

But some lenders will target unemployed people in order to help them. These options are much safer and can be a really useful tool if you are struggling financially.

You can find out how to get a loan with bad credit here.

Borrowing with low or no income

It is possible to get a loan while you are unemployed, but you will need a good credit history and a means of meeting repayments.

As well as your employment status, important parts of your credit history include:

  • Whether you have missed any utility bill payments

  • How much available credit you already have

  • How often and how recently you have been declined for loans

  • Whether you are on the electoral roll

A lender will only accept your application if they are happy that you will be able to meet monthly repayments in your current circumstances. They will want to see a strong credit history featuring consistent timely repayments to show that you manage debt responsibly. 

If you have no income or a low income, the best way to boost your borrowing power is improving your credit score.

Top tips to start improving your credit score

  • Check that the UK’s main credit scoring agencies (Equifax, Experian and TransUnion) have correct and up-to-date information on you

  • Add your name to the electoral roll

  • Stagger your loan applications (too many in quick succession can have a negative impact)

  • Pay any outstanding bills

  • Take out a credit building credit card and pay off the balance in full every month (to show lenders you can handle credit responsibly)

When you do apply for a loan, make sure you do not ask for more than you can afford to pay back every month. Write up a budget to find out how you are spending your money and where you can make savings to meet your loan repayments.

If you do not have a regular monthly income, it can be tempting to repay your loan over the longest possible period in order to cut monthly repayments costs. Be aware that spreading your repayments over a longer timeframe will mean you pay more overall. 

Being rejected for a loan – or any financial product – can be hugely demoralising. You might be unsure where to turn to next or how to meet your bills, but simply applying again is not a good option. A spiral of applications and rejections will damage your credit rating and make it even harder to get a loan in the future.

If you are in debt, borrowing money is probably bad idea. If you're struggling with debt you can get free debt help from:

Types of loan for unemployed people

If you are unemployed, the loan options available to you are likely to be:

Secured loans: This requires you to put up a valuable possession as security, such as your house or car. The risk of the lender losing money is less than with an unsecured loan – as they can possess your property if you fail to meet repayments – so you are more likely to be accepted, but whatever you secure the loan against will be at risk.  

Guarantor loans: You will need to ask a family member or friend to agree to meet the debt repayments on your behalf if you cannot pay.

Personal loans: You won’t need a guarantor or security, but few lenders will accept unemployed applicants for a personal loan as you will be seen as a risky customer. If you are approved for a loan, it will likely involve very high-interest repayments.

Look out for the loan with the lowest APR when comparing interest rates, but keep in mind that early repayment penalties and fees can have a big impact. If you find work and want to clear your debt, these extra charges can add up. 

Your best option is likely to be through a specialist lender, though borrowing any money while you are already in debt can cause issues. Remember to check if you are eligible for any benefits or, if you are struggling to buy essentials, a government budgeting loan or universal credit advance payment.

The universal credit advance is interest-free, and can be used to meet the cost of household essentials such as food, clothes and rent. The advance is repaid out of future universal credit payments. You can find out more about how to apply here

Budgeting loans are also interest free. To be eligible, you will need to have been claiming income support, income-based jobseeker’s allowance, income-related employment and support allowance, or pension credit for six months. If you continue to receive benefits, the repayments will be deducted from your payments, usually over two years.

If you are planning on borrowing to help meet mortgage repayments, the government’s support for mortgage interest programme (SMI) could be helpful. 

Credit unions

Credit unions usually have lower maximum interest rates, so they can be a good alternative to other short-term loan providers.

They are non-profit financial organisations made up of members with something in common, such as where they live or work. The members of the credit union have their savings pooled and loaned out to other members.

You might need to join the credit union to access the loan, while some may ask you to save with them for a specified period before you can borrow.

You can find a credit union in your area on the Association of British Credit Unions website.

Loans to avoid

Payday loans have gained a poor reputation for a reason. Their high interest rates can push you into a dangerous debt spiral – if you do not meet repayments the amount you owe shoots up. Many continue to target unemployed people in marketing campaigns, but it is a good idea to steer clear.

Home credit or ‘doorstep’ loans are similarly expensive, but require you to hand your repayments to a representative of the lender who comes to your door each week. Having a debt collector knock on your door can be a stressful and scary experience, so these loans are best avoided.

Store credit/finance can mean you end up spending far more for something than the advertised price once interest is factored in. It allows you to purchase items with credit and pay them off in instalments. If you are not able to make these repayments the items could be repossessed in some schemes, while your credit score could be hit and you will have to pay fees in others.

Pros and cons of getting a loan if you are unemployed

  • You can spend the money you get however you want (other forms of credit might be more limiting)
  • It can be a fast way to get funds for an unexpected expense
  • If you budget correctly and have a source of income, meeting the repayments of a fixed-rate loan should be possible
  • You should be able to choose how long you spend paying the loan back (though the longer you take, the more expensive it will be overall)
  • A loan could be a way of consolidating multiple outstanding debts into more manageable repayments
  • The interest rate on your loan will be higher than if you were back in work
  • Taking out a loan while you are in financial difficulty can backfire if you miss repayments, pushing you into a debt spiral
  • Missing repayments will sometimes lead to financial penalties and damage your credit score
  • If you take out a secured loan, your car or home will be at risk

What to look out for

Be realistic about whether you can meet the monthly repayments of any loan you take out. Missing repayments, or even defaulting, can have a huge impact on your future. Those kinds of markers on your credit history will affect your ability to get a mortgage or a credit card in the future.

If you are unsure what you can afford, use a budget tool to break down your expenses and understand what you spend and where you can save money. If you are in doubt over how much to borrow, it may be wise to opt for a lower amount.

It can be challenging to find a lender who will issue a loan if you are an unemployed applicant. Those who will lend to you may be less than reputable, or insist on a secured loan. This can make finding a loan a stressful process that you may want to avoid.

If you are unemployed, some lenders will protect themselves by:

  • Lowering the amount you are eligible to borrow

  • Expecting full repayment in a shorter window

  • Taking steps to reduce the chances you'll miss a payment

  • Charging higher interest rates and fees

Piling on debt can have a significant negative impact on your life, while missing repayments will affect what you can borrow in the future. If you decide to get a loan, make sure you: 

  • Find the best APR possible

  • Can afford the repayments 

  • Do not secure anything against your debt that you couldn’t afford to lose

  • Try to improve your credit score 

But always make sure you can meet the repayments of the debt you are taking on. If you are in debt difficulties, you can find help through free services such as Citizens Advice, StepChange Debt Charity, National Debtline, PayPlan and Shelter.

What to do if you can’t borrow

If you are rejected for a loan, you can find out what to do next here.