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If you've recently lost your job, you may be looking to borrow as a way to make ends meet. But most lenders require you to have a steady source of income to qualify for a loan, even if you're experiencing a financial emergency. Unless you're a seasonal worker, income from unemployment benefits generally doesn't count because it's only offered for a limited time (generally, up to 26 weeks), and extra federal assistance is limited as well.
You may, however, still have options if you need an emergency loan while on unemployment or after your unemployment benefits end.
What Do You Need to Qualify for an Emergency Loan?
There's no formal definition of an emergency loan, as the name refers to how you plan on using the money (for an emergency) rather than the type of loan. As such, the lender's requirements may be the same whether you're looking for a loan during an emergency or not.
Lenders consider a wide range of criteria to decide your loan terms, but you'll need to meet certain minimum requirements to be eligible for loan approval at all. These requirements often include living in a state where the lender operates, being at least 18 years old and having a Social Security number. Additionally, lenders generally consider your credit and ability to repay the loan by looking at:
- Your credit report
- Your credit scores
- Your monthly income, debt payments and resulting debt-to-income ratio
Requirements can vary depending on the lender and type of loan. For instance, if you're taking out a secured loan, such as an auto title loan or home equity loan, your collateral's value will also be important. And some lenders focus on borrowers who have excellent credit, while others work with borrowers who have poor credit. But if you don't meet one or more of these minimum requirements, your loan application can be denied even if you have excellent credit.
What Counts as Income When You Apply for a Loan?
In reviewing your ability to repay the loan and your debt-to-income ratio, lenders may look for various types of income and ask for verification documents, such as recent tax returns and bank statements.
If you've been collecting unemployment, you likely don't have a lot (or any) employment income, such as salaries, wages and commissions. And if you expect your unemployment benefits to end or shrink soon—or they already have—the income piece of the equation may be the hardest to shore up.
However, even when you're not working, you may have other sources of income that satisfy the requirement:
- Income from a retirement, pension or trust
- Disability and Social Security benefits
- Investments and rental property income
- Self-employment income
- Child support, alimony or separate maintenance (but lenders can't require you to disclose these sources of income)
Lenders vary on what types of non-employment income they consider. Some may only count unemployment as income if you're a seasonal worker who regularly collects unemployment for several months each year. Others might always—or never—count unemployment benefits as income.
How to Get an Emergency Loan
An unsecured personal loan can be a good option during an emergency, as online lenders often have easy applications and fast funding. You may even be able to prequalify for a loan in a few minutes without impacting your credit.
Here are a few steps you can take to prepare:
- Check your credit. Your credit can be especially important when you have limited income. Get your free credit report and FICO® Score☉ from Experian to see where you stand and how you may be able to improve your credit before applying. Higher credit scores can qualify you for lower interest rates and save you money on your loan repayment costs.
- Review lenders' income requirements. Look online or call lenders to see which types of income they'll consider and if they have a minimum annual income requirement.
- Get prequalified. If the lender offers it, try to get prequalified for a loan with a soft credit pull—which won't hurt your credit scores. You can also use Experian's loan comparison tool to see offers from several lenders in one place.
- Consider a cosigner or joint application. If you can't qualify for a loan on your own, you may be able to have a friend, family member or spouse who has a steady income and good credit serve as a cosigner (co-borrower) or joint applicant. But be cautious, as a cosigner will also be responsible for the loan, and missing payments can hurt their credit as well as yours.
If you're having trouble qualifying, you could be tempted by loans that are easier to qualify for, such as a no-credit-check loan, pawn loan or auto title loan. Some loan providers offer both unsecured loans and auto title loans, and you may be able to prequalify without impacting your credit.
However, as with payday loans, these types of financing tend to have high fees and interest rates that make them difficult to repay. In general, they're best left as a last resort once you consider all your other options.
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What Else Can You Do When Unemployment Ends?
As unemployment benefits shrink or end, there are many things you can do to continue covering your expenses. An emergency loan might be an option, but there are other measures you can take if borrowing money isn't a good idea or you can't get approved.
- Contact creditors. If you're worried about missing bill payments, contact your creditors and ask about your options as soon as possible. Even if they're not legally required to offer you hardship relief, creditors may work with you to make your payments more manageable.
- Learn about government protections. Local, state and federal laws may give you options and protections from creditors. For example, if you have government-backed student or home loans, you may be able to temporarily pause your payments.
- Look for help with housing. If you're worried about paying rent or your mortgage, research foreclosure, eviction or utility shutoff moratoriums that apply where you live. The National Low Income Housing Coalition has a database of payment assistance programs.
- Research assistance programs. In addition to housing assistance, you may be able to find help with food, utilities, medical bills and other necessities from local, state and national charities.
- Ask for professional advice. The nonprofit National Foundation for Credit Counseling can help connect you to free and low-cost advice from a certified credit counselor. Counselors may be able to assist with different types of financial problems, including housing, budgeting and managing credit card debt.
- Find a new source of income. Even if it's only part-time or gig work, having a little extra income can help cover essentials. It may also open up new options for emergency loans.
- Know which payments you can miss. While you want to pay every bill on time, sometimes you need to pick and choose. Prioritize the household's necessities—food, shelter, utilities, transportation and the like. Unsecured loan payments, such as credit cards or student loans, might go low on the list. But know that missing payments could hurt your credit and lead to collections later.
Stay on Top of the Latest News
Stay current with the news as you try to find work and negotiate with your creditors. While the COVID-19 crisis continues, states and the federal government may find ways to extend or expand unemployment benefits. You may also want to subscribe to emails from your local and state representatives to learn about changes and programs that might not make the national news.