There is a general understanding that the unemployed have no chance of getting a loan approved, regardless of the terms of the loan deal. Well, technically this is true, with the absence of a source of income enough to turn any lender off. But unemployment loans exist, which counter that belief.
Lenders are willing to take a leap of faith, but understand that not just anyone without a job will be accepted. There are strict criteria to be met before a lender would be in a position to grant loan approval with no income.
But the key question is why a lender would take such a high risk by providing financing for the unemployed? And for those with no income, is taking on a loan really a move that can benefit them in the long run?
Why Lend To The Unemployed?
The quick answer to this question is that the vast majority of the unemployed do not stay that way. They find new jobs and become viable borrowers with incomes that ensure the repayments due on their unemployment loan are made without any trouble.
The basic idea is similar to student loans, where the lender looks at factors such as the potential earning ability of the borrower and the long term value of granting a period of grace. In effect, granting loan approval with no income is a matter of faith.
But there are conditions that limit the degree of generosity lenders may seem to be showing. The long term unemployed are not entitled to apply for this kind of financing for the unemployed. The longer a person is jobless, the less likely he or she is to find new work.
Terms of an Unemployment Loan
It will come as little surprise that an unemployment loan is limited in what it offers, but there are both short and long term loans available. The typical short term loan limit is around $1,500, and is designed for those that need a cash injection for specific reasons.
The long term loan can be as large as $10,000, but repaid over as much as 5 to 7 years. The reason is that in granting loan approval with no income, lenders need to be realistic. So the repayment sum is kept as low as possible to make it affordable.
Financing for the unemployed comes at a price, with interest rates that are higher than normal, with short term loans carrying the biggest interest charges. However, to ensure the short term options can be repaid without much bother, a range of flexible repayment terms, of between 1 and 6 months are on offer.
Qualifying for an Unemployment Loan
So, how can someone with no income qualify for an unemployment loan? As has already been mentioned, the opportunity is available to the recently unemployed, but applications will only accepted by those who have been unemployed for at least 6 months.
There is also a need to prove a good credit history before a lender is willing to grant loan approval with no income. After all, they need some indication that they will get their money back, and a history of repaying debts is the best type.
Finally, there needs to be some indication that employment can be found in the short term. So, lenders are likely to prefer qualified individuals in employment sectors that are high paying. Providing financing for the unemployed is great, but lenders need their assurances.