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Most of us will experience money troubles at some point in our lives but, when you’re unemployed, tightening your purse strings can become a part of daily life.

If you’re currently on the hunt for a job or are unable to work, you may not have money to play with should a one-off expense arise. A broken washing machine, failed MOT, or school uniform that’s shrunk in the wash and needs replacing could, at any time, require spending money you just don’t have.

In this situation, many choose to turn to a short term loan to cover the immediate cost, paying it back in small, manageable sums each month. But when you’re unemployed, proving to a lender that you will be able to pay them their money back can be more difficult.

 

What do short term loan providers usually look for?

When a short-term loan company looks at your loan application, you’ll need to tick certain boxes to be accepted. This can vary from lender to lender, but usually, the main things they will want you to have is the inclination and the means to pay the money back on time.

This is known as an affordability assessment which is there to make sure you can make all of your repayments. You will be asked to provide proof of your monthly income, including:

  • Salary payments from your employer (if you have one)
  • Self-employed income
  • Any benefits or pensions you receive
  • Other sources of income you may have, such as regular payments from a partner

Each short-term loan provider will have their own criteria as to what they will accept, so speak to the Moneypod team to find a lender to suit you.

This evidence may show that you are financially capable of making your monthly repayments but this, on its own, may not reassure the lender that they will definitely get their money back. They will, of course, need to check your credit history too.

With any kind of short term loan application, the provider will need to run a credit check. This, ironically, can actually impact on your total score over time (see our article ‘Can I get a Short-Term Loan with a Bad Credit Rating?’ here).

When you apply for your short-term loan through Moneypod, we will carry out what is known as a ‘soft credit search’ first. This won’t show up on your credit report as it would if you went directly to the lender. The soft credit check allows us to pair you up with the short-term loan provider most likely to accept you. The lender will then carry out a full credit search before accepting you.

While a poor credit history will not necessarily stop you from getting a loan, as many providers offer special short-term loans specifically for those with bad credit, it can limit your options.

 

Loans for the Unemployed

Many mainstream lenders will look for borrowers with a steady, ongoing salary for their loans. In most cases, unemployment or a bad credit rating will make you seem too great a risk to lend money to.

However, there is a growing number of short term loan companies specifically catering for unemployed people – meaning even without a predictable income, you may still be able to access credit.

These specialist short-term loan providers will usually offer secured loans or slightly higher rates of interest to make up for the lack of stable income and reassure the lender that they will get their money back.

 

Secured loans

This type of loan is usually easier to be accepted for, even if you are unemployed, as you use your assets as collateral. You could put up a possession such as your car or house as security on the loan, which means if you do not keep up with your loan repayments, the provider will be able to repossess this security.

This means that, even if you are unemployed, the lender knows they will definitely get their money back; so, you are more likely to be accepted for a secured loan. This kind of loan is usually used to borrow larger amounts of money.

 

Slightly higher interest loans

Rather than ask for collateral from unemployed borrowers, some short-term lenders offer loans with slightly higher interest rates instead.

As you may be seen as a greater risk to the lender than someone who is in permanent employment, higher interest rates are used to balance out the risk. If you know you will pay more for defaulting on a payment, you’ll be more inclined to make your repayments on time.

Many of these specialist short term loan providers will still ask that you:

  • Are over 18 years of age
  • Receive at least £400 each month from your salary or benefit allowance
  • Have lived in the UK for at least 6 months.

 

How to improve your credit history

If you are still struggling to be accepted for a loan, you may consider attempting to improve your credit score first. Being both unemployed and having a bad credit score will make you a high risk to any lender so taking steps to make it better will increase your chances of being accepted.

There are several ways in which you can go about improving your credit score, such as:

  • Checking your details with credit agencies are correct and up to date.
  • Adding your name to the electoral register through your local authority, as this proves to lenders that you have a permanent address.
  • Spacing out your short-term loan applications. Making too many credit applications in a short amount of time, and being repeatedly rejected, does not look good to lenders. It may be better to use a short term loan broker like Moneypod.
  • Making all credit payments on time once you receive your loan. Over time, this will rebuild your credit score.

If you’re unemployed and are looking for a short-term loan to help you through a time of financial hardship, there are still options available to you.

If you’d like to apply for a short-term loan and you want us to make sure you’re matched up with the right lender, please click here to start your no-obligation application.