Unemployed people can qualify for bad credit loans in the UK, but they are riskier and extremely expensive. Bad credit loans are aimed at subprime borrowers to help them fund small emergencies. However, they are quite challenging to qualify for when you are unemployed. No lender will feel inclined to approbate your application in the absence of an income source. They would want their money back, and hence, you need to have an income source.
While you do not have a fixed employment, you must have a passive income source. It enables you to prove your repayment capacity. The passive income source includes benefits as well as side gigs such as babysitting, pet sitting, walking dogs, Uber driving, lawn mowing, and freelancing.
What are bad credit loans for the unemployed?
Bad credit loans for the unemployed are short-term loans, ideal to meet emergency expenses. They are not different from unemployed loans. When these loans are targeted at subprime borrowers, they are called bad credit or unemployed loans. In fact, most of the lenders do accept applications from bad credit borrowers, whether or not they advertise their loans as bad credit or unemployed loans.
Here are the features of unemployed loans for people with bad credit:
- The maximum amount you can borrow is up to £1,000, but most of the lenders would cap it at £500, as you do not have a stable income source.
- Interest rates for these loans are quite high.
- You will be allowed to discharge these debts in full on the due date.
- The APR of these loans could go up to 1500%.
If you are looking to apply for a loan while being unemployed, make sure that:
- You are borrowing money for unavoidable reasons. Do not borrow money if the nature of the expense is not urgent. You should rather start stashing away money.
- You will not fall behind on payments. As the debt is to be paid off in one fell swoop, it can be quite challenging to settle the debt.
- You have checked that you will not struggle to pay for your essential expenses while paying off these debts.
From where can you take out bad credit loans if you are unemployed
Loans for people with bad credit and no guarantor are available for unemployed people as well. In order to qualify for these loans, you must ensure that you can repay your debt obligations. Your chances of getting approval for these loans are quite high when you earn enough money through side gigs that you can easily manage the debt payment along with other essential expenses.
You can take out these loans from various sources, such as:
- Direct lenders
Banks do not provide these loans because your credit score is poor, and you also do not have a fixed income source, but you can apply for these loans from direct lenders. Various online lenders will be able to approve your application, provided you prove your repayment capacity.
You must have income from a side gig to qualify for better interest rates. However, in the absence of passive income, they will consider benefits. However, it is still recommended that you carefully assess your repayment capacity.
While lenders will sign off on your application after a perusal of your repayment capacity, the ultimate onus is on you. If somehow you have borrowed more than you should, you will have to bear the consequences.
- Credit unions
Credit unions might not be able to lend as much as direct lenders, but they also accept bad credit applications from unemployed people. The maximum amount they lend is up to £500. However, most of the time it is less than that. This is because of your weak repayment capacity.
The biggest benefit of borrowing from credit unions is that they are more flexible than direct lenders when it comes to settlement. Credit unions also charge high interest rates, yet they are more competitive than online lenders.
What if you fail to get approval for bad credit unemployed loans?
There is no guarantee that you will receive approval from direct lenders or credit unions. They will carefully assess your repayment capacity before approving your loan. If you fail to prove your ability to repay, they will reject your application. Here is how you can increase your chances of getting approval:
- Arrange a guarantor
You should arrange a guarantor with a good credit history. The guarantor will be responsible for paying off the debt in case you fail or refuse to pay off. Your lender will turn to your guarantor only when all means of recovering money from you have been exhausted.
It is worth noting that arranging a guarantor also comes with its consequences. If you fail to repay your debt, your guarantor will be asked to settle the dues. This will affect your relationship with them. In fact, your guarantor will also lose their credit points.
- Borrow less money
It is not always possible to arrange a guarantor when it comes to taking out a bad credit unemployed loan. If you have been struggling to qualify for a loan, it is likely that you are borrowing more than your repayment capacity.
The best way to deal with this problem is to borrow less money. This will increase your chances of borrowing money at affordable interest rates.
Tips to bear in mind
Here are the tips you should bear in mind:
- You should ensure that you are borrowing money from a registered lender.
- At the time of borrowing money, carefully calculate your repayment capacity.
- If you have to arrange a guarantor, you must ensure that you will not struggle with repayments.
The bottom line
You can take out unemployed loans with bad credit, but they are harder to qualify for. They are also extremely risky. A golden rule of thumb says that you should carefully analyse your repayment capacity before using these loans. Make sure that you will borrow these loans from an authorised lender.
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