Personal loans for the unemployed – what are your options?

Sub Editor · 7 July 2021
If you’re unemployed and want to borrow money, you may still be eligible for a personal loan. In this article, we cover some of the loans and wider finance options that may be available to you.

If you are unemployed, you may want or need to borrow money in some cases. There are different options to consider, whether you are seeking to buy a car, need help with the costs of a home renovation or wedding, are keen to consolidate your debts or have to pay for other expenses. In this article, we cover:

Can you get a loan if you’re unemployed?

You may be able to get a loan if you are unemployed. However, it will depend on your personal circumstances and the eligibility requirements of any loan products you apply for. If you are unemployed, you may find that you have fewer options available for borrowing money than you otherwise might. Tighter repayment terms may apply, or you may not be approved for a loan without a traditional income stream.

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

What eligibility criteria apply for a loan if you are unemployed?

Providers typically look at various criteria to determine your suitability for a loan. To begin with, you’ll typically need to prove some form of income, savings, or solid financial history to be considered. A lender may also check your credit score and credit history as part of its assessment to determine your creditworthiness. If you have a low credit score, a higher interest rate might apply with some personal and car loans. You can check your credit score for free with Canstar.

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

If you are unemployed, the following types of credit may be available to you:

With any type of loan or credit you apply for, keep in mind that it’s very important to consider your capacity to reasonably repay any debt, along with the interest and fees charged. If you need support to help you manage your finances, free financial assistance is available.

Personal loan

You can apply for a personal loan if you are unemployed, although it is possible your options may be more limited or more expensive in some cases than a person with a higher income. A credit provider will typically consider factors such as your credit score and history, income and expenses in working out your creditworthiness based on your application. You may like to find out more about Award-winning personal loan providers, as rated by Canstar, which might lead to considerable savings. We also have related articles about personal loans if you are on Centrelink, personal loans for low-income earners, personal loans for pensioners and guarantor personal loans, which could be of interest to you depending on your situation.

No Interest Loans Scheme (NILS)

The No Interest Loans Scheme (NILS) is designed for people needing small amounts of money for essential household and living expenses. The scheme was set up to support eligible low-income individuals and families with access to affordable credit. It offers up to $1,500, and this amount can be used for essential goods and services such as fridges, car repairs and some medical procedures. NILS loans have no interest, fees or charges, meaning you only repay what you borrow. The loan amount can be repaid over 12 to 18 months. For eligibility requirements and to contact your local NILS service provider, you can visit the NILS website or call 13 NILS (13 64 57).

Buy now pay later services

Buy now pay later (BNPL) services, such as Afterpay, Zip Pay, Humm and Openpay, have become increasingly popular in Australia in recent times, according to figures released by the Australian Securities and Investments Commission (ASIC). The services enable consumers to purchase goods or services and pay for them over a period of time in instalments.

Nationally, around 95% of our BNPL market is controlled by eight companies that have signed a BNPL Code of Conduct with the Australian Finance Industry Association (AFIA). BNPL providers are only self-regulated for the most part, so they don’t need to meet the responsible lending obligations that apply under the National Credit Code. Consumer groups such as Choice and the Consumer Action Law Centre have been critical of the lack of regulation of BNPL services for Australians.

Earlier ASIC research from 2018 showed only one in six BNPL providers was considering the income and existing debts of consumers when assessing consumer applications. If you are considering using BNPL to support you with covering costs while you are unemployed, think very carefully about this, and consider seeking free, professional financial advice to support you with your decision making.

Credit cards

If you are unemployed, spending extra money on a credit card, or applying to take out a new credit card, could be options you are considering. However, before using a credit card, think about it very carefully. If you have had difficulty meeting your repayments on other credit previously, or you have missed bill payments lately, applying for more credit may make it even more challenging to manage your finances.

Credit cards in particular can 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 purchase balance, you may pay interest on any cash advances and balance transfers. Credit cards can also bring a range of fees you’ll need to pay, such as annual fees, late payment fees, international transaction fees, cash advance fees and balance transfer fees.

Keep in mind that it can damage your credit score if you miss or make late repayments on existing debt, plus 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 still result in “a lot” of fees, according to ASIC’s Moneysmart. The Financial Rights Legal Centre (FRLC) recommends against this type of loan and they are regularly criticised as not generally being in consumers’ best interests.

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. Marketplace lenders offer secured and unsecured personal loans and you will usually need to provide your personal and financial details, just as you would with a more traditional lender. Find out more about peer-to-peer lending.

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

Here are 10 things to consider before applying for a personal loan if you are unemployed:

  1. 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 on a loan, or risk a negative impact on your credit score if you aren’t approved for multiple loan applications.
  2. Is there a better option available? You can compare personal loans with Canstar, including finding out how much you might be able to save with an outstanding value personal or car loan provider.
  3. 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 are applying for.
  4. 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.
  5. Is the interest rate fixed or variable? The benefit of a fixed rate is that you can budget with the certainty of knowing your repayments won’t change during the loan, but variable rate loans can sometimes work out cheaper overall. Either way, you may be charged a fee if you pay the loan off earlier than the agreed loan repayment term, although ASIC’s Moneysmart notes that this is less common for variable rate loans.
  6. 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 take it off you and sell it if you default on your loan. With an unsecured loan, the interest rate might be higher.
  7. 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 the guarantor. For example, if you can’t keep up with your personal loan repayments, your guarantor may become liable for them.
  8. 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.
  9. What are the terms and conditions of the loan you are 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.
  10. 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 not a lot 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, which means it can be 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?

A variety of lenders may consider unemployed applicants. In reviewing your application for a loan or line of credit, a credit provider will ask you to provide proof of income, and will also usually check your credit score. Depending on the type of loan you are looking for, you can compare some options that might be available to you with Canstar. Before committing to a particular loan, check upfront with the lender and consider seeking professional advice to confirm whether the loan is available for unemployed applicants and whether it suits your needs and repayment capacity.

How can you apply for a loan while unemployed?

You usually follow a credit provider’s standard process to apply for a loan or other credit product while unemployed. It may be worthwhile to contact 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 credit providers within a short timeframe, this can lower your credit score, which could make it more difficult or more 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 work soon? What if the eligibility criteria change for any government benefits you might receive? If you are finding it hard to manage existing debt, you might be considering options such as a debt consolidation loan. If personal debt becomes unmanageable, it can be distressing, and even lead to financial hardship, insolvency or bankruptcy. Free financial advice is available if you are having difficulty in managing your finances. You can contact the National Debt Helpline on 1800 007 007 to connect with a financial counsellor near you.

Additional reporting by Kelly Stone.


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