It's possible in some cases for a person to gain approval for a personal loan while on unemployment. The lender's biggest concern is the applicant's ability to repay the loan, but some people have income other than their jobs or unemployment benefits. For example, someone collecting unemployment could also have additional, regular income through, say, a long-term insurance settlement or from rental property or other investments.
Qualifications
A strong credit rating and other reliable sources of income may make unemployment income a non-issue. After all, not everyone collecting unemployment is struggling to make ends meet. Unemployment is a benefit that people earn through working, and some people apply for unemployment benefits after a job loss because they feel they deserve them. Someone with, say, a credit score greater than 720 may easily qualify for a loan based on other income. Credit scores range from 350 to 850, with scores of 720 or higher representing outstanding credit.
Considerations
Someone without reliable income may have more difficulty gaining approval. A traditional lender such as a bank or credit union may not make a long-term loan based on unemployment benefits because the benefits are temporary. Also, the lender may determine that the unemployment benefits are not enough to cover the applicant's current debts and living expenses -- making an additional loan risky for the lender because the applicant may not be able to make the payments.
Collateral
Offering collateral usually increases the chances of credit approval, although most traditional lenders will still review the applicant's debt-to-income ratio. Someone getting by solely on unemployment benefits may not qualify for a traditional loan even with collateral. However, exceptions are possible, as lenders make individual decisions about credit.
Alternatives
Income isn't a consideration at all for some nontraditional, high-risk lenders. That could make it easy for people on unemployment to qualify regardless of their overall income or credit. A random online survey in 2011 showed several payday loan lenders offering short-term loans with no credit check or income verification necessary. Other loans available to people without income verification include pawnshop loans and car title loans. However, the Federal Trade Commission recommends that people avoid high-interest loans. The agency reports that interest rates on the loans are often astronomical, and can exceed 300 percent. Borrowing from friends or family is preferable to high-interest, short-term loans. Another possibility for short-term help is overdraft protection linked to a checking account. Overdrafts are similar to payday loans -- without such incredibly high interest rates. Using other existing credit, such as credit card cash advances, is another option.
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