Can I get a personal loan if I'm unemployed?

Can you get a personal loan if you’re unemployed?

Being unemployed or out of work doesn't automatically rule you out of getting a personal loan, but it does change the game somewhat. You may qualify for fewer loan options and face higher interest rates when borrowing money. 

Lenders assess your ability to repay the loan based on your overall financial position, not just your employment status. This means they look at several factors when assessing your application.

Loan eligibility criteria for unemployed people 

Under responsible lending laws, lenders only approve a loan if they believe you can repay it without experiencing financial hardship. If you can prove you’re able to meet your repayments, you have a fair shot at being approved for a personal loan, even without a steady job.

To determine your suitability, a lender will compare your financial situation against its own eligibility criteria. It will also check your credit score and history as part of its assessment to determine your creditworthiness. 

Without consistent income, a lender will be less certain about your ability to repay the loan and will likely see you as a higher-risk borrower. As a result, it may apply stricter criteria, offer lower borrowing limits, or charge higher interest rates and fees. Similarly, if you have a low credit score, a lender may put a higher interest rate on the personal loan products it offers you.

If you’re applying for a loan while unemployed, you can strengthen your application by showing other sources of income, such as Centrelink payments or pensions, rental income, or investment returns. You might also choose to put up an asset, like a house or car, as security for the loan, thereby reducing the risk you represent to a lender.

In general, you’ll need to provide the following when applying for a loan:

• Information on any income you’re receiving (for example, Centrelink or freelancing payments)
• Information on your living expenses and existing debts
• Proof of your savings and any assets you own

How can you borrow money if you’re unemployed?

If you’re unemployed and need to borrow money, there may be a few options at your disposal, but each comes with costs and risks. It’s important to consider whether you can afford to repay any debt before applying.

Keep in mind that certain products, particularly payday loans, are high risk and should be approached with caution.

If you need support managing your finances, the National Debt Helpline (NDH) offers free, independent and confidential financial counselling.

Some borrowing options you may consider are:

A personal loan

You can apply for a personal loan if you’re unemployed, although you may find your options more limited or more expensive than those offered to a person with a higher, more regular, or more stable income. 

If you’re approved for a personal loan, you’ll need to make regular repayments until you’ve paid back the full amount borrowed, plus interest.

Credit cards

A credit card lets you make purchases, up to a pre-approved limit, and repay the amount over time. However, they often attract higher interest rates and fees than other forms of credit, like personal loans, if you don’t repay any balance in full each month.

Credit cards can also come with a range of fees, including annual fees, late payment fees, and international transaction fees.

If you’re planning to apply for a credit card, check the provider’s eligibility criteria before applying. If you’re unemployed, you might not qualify or you may be offered a lower credit limit.

No Interest Loans Scheme (NILS) loans

The No Interest Loans Scheme (NILS) is designed to help eligible low-income individuals and families cover essential household and living expenses by providing access to affordable credit. Key details of the scheme include:

• It allows you to borrow up to $2,000 for essentials such as appliances and furniture, or up to $3,000 for rental bonds or costs associated with a natural disaster.
• It charges no interest, fees or charges, meaning you only repay what you borrow. But you still need to prove that you can repay the debt to be eligible.
• Borrowers must repay their loan within 24 months.

For more information or to find a local NILS service provider, visit the NILS website or call 13 NILS (13 6457).

Buy now pay later services

Buy now pay later (BNPL) services have become popular in Australia. They allow customers to purchase goods or services now and pay for them in instalments, usually with associated fees. Remember, despite how it’s sometimes marketed, BNPL is a form of credit and debts can quickly spiral. Think carefully before using BNPL to cover costs while you're unemployed and seek advice if you need it.

Payday loan

Payday loans, also known as short-term loans or fast cash loans, typically let you borrow up to $2,000 and repay the funds over a period of between 16 days and 12 months. While lenders can’t charge interest on these loans, they can add on hefty establishment and monthly fees.

Payday lenders can charge an establishment fee of up to 20% of the borrowed funds and a monthly fee as high as 4% of the amount borrowed. On a $1,000 loan, that could mean a $200 establishment fee and a $40 monthly fee.

The Financial Rights Legal Centre (FRLC) warns against this type of loan. They’re regularly criticised as not generally being in 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.
• Are you eligible for any government support? Before applying for a personal loan, consider checking whether you are eligible for government support, such as a Centrelink advance if you are on JobSeeker Payment, or a NILS loan.
• What options are available to you? If you’ve decided that borrowing money is your best option, take the time to compare a range of loans and credit facilities, considering interest rates, fees, features, and eligibility criteria.

What to look for in a personal loan if you’re unemployed

Choosing a personal loan product is much the same whether you’re employed or not. However, when you're between jobs, the details can matter even more. Here are the key questions to ask before you commit:

• 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 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 due to any perceived extra risk you might represent.
• Is the interest rate fixed or variable? With a fixed interest rate, your repayments stay the same, making budgeting more predictable. A variable rate can change over time, meaning your repayments may go up or down.
• Is the loan secured or unsecured? Applying for a secured loan–one where you provide an asset as security–may improve your chances of approval, as having security on the table reduces the lender’s risk. Unsecured loans do not require collateral but may come with higher interest rates.
• Would a friend or family member consider ‘going guarantor’ for you on a loan? A guarantor–someone who promises to pay the debt back if you don’t meet your repayments–can improve your chances of approval by reducing the amount of risk taken on by the lender.
• What’s the loan term? Personal loans generally offer terms of between one and seven years–short terms mean higher repayments while longer terms result in more interest overall. 
• What are the terms and conditions of the loan you’re applying for? Make sure you thoroughly read the terms and conditions of your loan agreement before you sign or submit your application. 

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. 

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, even if you’re unemployed. It’s worth contacting a lender directly if you have any questions before submitting an application.

Keep in mind that shopping around for credit by applying to multiple providers within a short timeframe can lower your credit score. This may make it more difficult or expensive for you to access credit in future.

Where can you get free financial advice?

You can get free financial advice by contacting the National Debt Helpline via its website or by calling 1800 007 007. It provides free, independent and confidential financial counselling and support.

Taking on any kind of debt comes with risk, particularly when your income is inconsistent. What if you don’t find consistent work soon? What if the eligibility criteria changes for any government benefits you’re receiving?

While borrowing money can help you meet personal or emergency expenses, it is not a long-term solution for financial hardship. If you’re struggling with existing debt or need to borrow money to meet your day-to-day expenses, support services like the NDH can help you understand your situation and make informed financial decisions.