Loans for unemployed people

What is a loan for unemployed people?

If you’re currently unemployed, you may find that you have fewer options available when borrowing money. Tighter repayment terms may also apply, or you may not be approved at all without a steady income stream.

You may still be able to get a loan, but it will depend on your personal and financial circumstances and the eligibility requirements of the loan products you’re considering.

In Australia, lenders are legally obligated to lend money responsibly as part of the responsible lending laws. This means you’ll need to prove to a lender that you can afford to repay the money you borrow on time and without falling into unmanageable debt and financial hardship.

What eligibility criteria apply to a loan for unemployed people?

Lenders typically look at various factors when determining your suitability for a personal loan. You’ll typically need to provide information on the income you’re receiving (e.g., centrelink payments, freelancing payments etc.), your savings and assets, other debts you may already have and your financial history. This helps the lender determine whether you can comfortably afford the loan repayments.

A lender may also check your credit score and history as part of its assessment to determine your creditworthiness. If you have a low credit score, a lender may impose a higher interest rate to the personal loan products it offers you.

Check your credit score for free with Canstar or via the Canstar App.

What options do you have to borrow money if you’re unemployed?

A number of borrowing options may be available to you if you’re currently unemployed. It’s important to keep in mind that some kinds of loans, in particular payday loans, are very risky and should be approached with caution.

With any type of loan or credit you apply for, it’s important to consider your capacity to repay the debt, along with the interest and fees charged. If you need support or advice when it comes to your finances, the National Debt Helpline (NDH) offers free, independent, confidential financial counselling. They can be reached via their website or on 1800 007 007.

Some borrowing options you may consider are:

No Interest Loans Scheme (NILS) loans

The No Interest Loans Scheme (NILS) is designed for people who are looking to borrow money for essential household and living expenses. The scheme was created to support eligible low-income individuals and families with access to affordable credit. It offers up to $2,000 for essentials such as appliances and furniture, and $3,000 for the bond on a new rental property or costs associated with a natural disaster.

NILS loans have no interest, fees or charges, meaning you only repay what you borrow, but you would still need to prove that you can repay the debt. The full loan amount must also be repaid in 24 months or less. For eligibility requirements and to contact your local NILS service provider, visit the NILS website or call 13 NILS (13 6457).

Personal loan

You can apply for a personal loan if you’re unemployed, although it’s possible your options may be more limited or more expensive than those for a person with a higher, regular income. If you’re approved for a personal loan, you’ll need to make regular repayments until the full amount borrowed, plus interest, is paid back to the lender. You may also like to consider the Award-winning personal loan providers as rated by Canstar when making your decision.

Peer-to-peer lending

Peer-to-peer lending, also known as P2P or marketplace lending, is an alternative to loans from traditional lenders such as banks, building societies or credit unions. People who have money to invest are matched with people who are looking for a loan, through an online platform. Much like a regular personal loan, the interest rate you’re offered can change depending on your credit score and fees may also apply.

P2P lenders mostly offer unsecured personal loans (i.e., loans that don’t require collateral) and you’ll usually need to provide your personal and financial details, as well as meet certain eligibility criteria.

Buy now pay later services

Buy now pay later (BNPL) services have become increasingly popular in Australia in recent times. They allow customers to purchase goods or services, then pay for them over a period of time in instalments, usually with associated fees. BNPL providers now must also meet the responsible lending obligations that apply to other lenders in Australia.

If you’re considering using BNPL to support you with covering costs while you’re unemployed, think very carefully about this, and consider seeking free, professional financial advice to support you with your decision making.

Credit cards

Before using a credit card to make purchases, think about it carefully. Credit cards often attract higher interest rates and fees than alternatives like personal loans, unless you pay the balance back in full every month. As well as paying interest on your outstanding balance, you may have to pay interest on any cash advances and balance transfers you make.

Credit cards can also have a range of fees that you may have to pay, such as annual, late payment, international transaction and conversion, cash advance and balance transfer fees.

Keep in mind that it can damage your credit score if you miss or make late repayments on existing credit card debt, as well as if you make multiple applications for a credit card in a short amount of time.

Payday loan

Payday loans, also known as short-term loans or fast cash loans, typically allow you to borrow up to $2,000 and repay this amount between 16 days and one year. While lenders can’t charge interest on these types of loans, they can charge hefty establishment and monthly fees until the amount borrowed is paid back. Most payday lenders charge an establishment fee of 20% and a monthly fee of 4% of the amount borrowed. For a $1,000 loan, that’s a $200 establishment fee and a $40 monthly fee.

The Financial Rights Legal Centre (FRLC) warns against this type of loan as they are regularly criticised as not generally being in the consumers’ best interests.

What should you consider before applying for a loan if you’re unemployed?

• If you review your budget, could you cover your costs without borrowing money? This may be the cheapest option, because you won’t need to pay interest or fees, or risk a negative impact on your credit score if you aren’t approved for a form of credit.

• What options are available to you? Compare a range of personal loan options, including low interest, secured and unsecured personal loans. Consider the interest rate offered, as well as the fees that may apply and loan features on offer from each provider.

• What is the minimum and maximum borrowing limit? Lenders may set minimum and maximum loan sizes or borrowing limits, determining the amount of money you can borrow. The exact limits, if applicable, may vary depending on the lender and the type of loan you’re applying for.

• What is the interest rate? If you have a limited income or a low credit score, some lenders may charge you a higher interest rate than a borrower with a higher income or credit score.

• Is the interest rate fixed or variable? The benefit of a fixed rate is that you can budget with the certainty of knowing your repayment amount won’t change during the loan period, but you may be charged a fee if you decide to pay the loan off early. On the other hand, the size of your repayments under a variable-rate loan may change due to market factors (i.e., the cash rate changing), but you may be offered more loan features like redraw facilities, which may help you pay down your debt faster.

• Is a loan secured or unsecured? With a secured loan, you’ll need to provide an asset, such as a car, that’s ‘secured’ against the loan, in case you cannot make the repayments. This is known as collateral, and the lender may be able to repossess the asset and sell it to recoup the debt if you default on your loan. With an unsecured loan, a security is not required, so the interest rates on offer may be higher.

• Would a friend or family member consider ‘going guarantor’ for you on a loan? Having a loan guarantor could improve your prospects of being approved for a personal loan if you need to borrow money. But there are also risks involved, both for you and your guarantor. For example, if you can’t keep up with your repayments, your guarantor may become liable for them.

• What’s the loan repayment term? With a personal loan, this can vary from a few weeks to several years, depending on factors such as your lender and the type of loan you take out.

• What are the terms and conditions of the loan you’re applying for? If you decide to apply for a personal loan, check that your credit provider is licensed and thoroughly read the terms and conditions of your loan agreement before you sign or submit your application. This documentation will tell you how much you’re borrowing, how much interest and other fees you’ll be paying and when, and the term of your loan (i.e., length of time before the loaned amount needs to be paid back in full).

• Do you have a plan or budget in place to repay the loan? You may need to be realistic about your cashflow, particularly if there’s an inconsistent amount of money coming in. What are your existing living expenses and financial commitments, and how would your new loan repayments impact the cash you have left over each week? Some lenders might deduct automatic payments from your bank account, making it important to ensure you have money available in your account on your repayment dates.

For advice tailored to your personal circumstances, you may also want to consider speaking to a professional financial adviser or counsellor.

Which lenders consider unemployed applicants?

Some lenders may consider unemployed applicants and offer specialised loan products for them, but it’s important to check with a potential lender if they do before applying. This can be done by checking its website or contacting them directly.

How can you apply for a loan while unemployed?

You can usually follow a credit provider’s standard process to apply for a loan or other credit product. It’s worth contacting a lender directly if you have any questions before submitting an application for a loan.

Keep in mind that if you shop around for credit and apply to multiple providers within a short timeframe, this can lower your credit score. This could make it more difficult or expensive for you to access credit in future.

Where can you get free financial advice?

Regardless of what type of debt you have, or are considering, borrowing money comes with risk. What if you don’t find consistent work soon? What if the eligibility criteria changes for any government benefits you’re receiving?

If you’re finding it hard to manage existing debt, you might consider options like a debt consolidation loan. If personal debt becomes unmanageable, it can be distressing, and even lead to financial hardship, insolvency or bankruptcy.

There’s help available through the National Debt Helpline (NDH) via its website or on 1800 007 007. It provides free, independent and confidential financial counselling and advice.