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

Obtaining a personal loan when you’re unemployed might feel like a pipe dream. You might be wondering whether there are lenders out there willing to take a chance on you. The good news is your chances of securing a personal loan could be higher than you think.

Read on to find out how to get finance for a personal project, even without a job.

Centrelink payments as income

Some lenders may offer you a secured personal loan even if your only source of income is Centrelink payments. Regular, ongoing Centrelink payments such as the Age Pension, Carer Payment, Veteran Payment, Family Tax Benefit, Rent Assistance and payments from the National Disability Insurance Scheme (NDIS) may be viewed as regular income.

Usually, lenders require you to reach a certain minimum income before they will consider approving a personal loan. If your Centrelink payments reach this minimum amount, some lenders will offer a secured personal loan, if they are convinced you will have the ability to make the repayments without falling into financial difficulty.

A ‘secured’ personal loan means you will need to offer an asset as security against your loan, such as a home, jewellery, valuable art or significant assets saved in the bank or in investment accounts. This means if you are unable to repay the personal loan down the track, the lender could repossess your asset to cover the costs of the loan.

Know the score 

If you tick the box for regular Centrelink payments, the next step is to find out your credit score. Lenders will always check your credit history to see whether you have a history of repaying your debts on time. This helps them decide whether you are a trustworthy borrower.

Your credit report has a huge say in whether you’ll be approved for a personal loan and how much you’ll be able to borrow. It also impacts the interest rate you’ll be offered and other loan features. 

Your credit score is a number that sums up the information on your credit report. It takes into account things like the number of credit applications you’ve made and the amount of money you’ve borrowed. It also notes your history of repaying debts on time. 

A typical credit score will fall between zero and either 1000 or 1200, depending on the credit reporting agency. The higher the score, the better! 

Check out this credit score table from Equifax so you know where you stand:

  • Excellent: 833 – 1,200
  • Very good: 726 – 832
  • Good: 622 – 725
  • Average: 510 – 621
  • Below average to average: 0 – 509

If your credit score is over 600, chances are you will be able to secure a car loan interest rate between 5% - 10% per annum. Scores below 510 are likely to attract a higher rate. 

Checking your credit score is a worthwhile exercise. It can help you negotiate better deals or understand why a lender rejected you. If you spot any errors in your credit report, you can fix them for free by contacting the credit reporting agency. 

You can get a copy of your credit report and credit score for free every 3 months. Check your credit report for free by contacting one of these credit reporting agencies:

  • Equifax: phone 138 332
  • illion: phone 132 333
  • Experian: phone 1300 783 684

Simply call to get your credit score on the spot or access your report online within a day or two. You could have to wait up to 10 days to get your report by email or mail. 

You can also obtain your credit report through government financial guidance site Moneysmart, or financial comparison sites like Canstar.

Give it a polish!

It makes sense to work on your credit health consistently so that you can apply for personal loans with confidence. 

There are ways to clean up your credit report and increase your credit score to improve your chances of being approved:

  • Pay your rent, mortgage and utility bills on time
  • Make credit card repayments on time and try to pay more than the minimum repayment
  • Lower your credit card limit
  • Limit how many applications you make for credit 

All of these things will help your credit score to improve over time. 

Save a deposit

Keep in mind that if you don’t have a job, you will need to save up for a larger deposit than if you were employed. You might be asked for a deposit of around 30% of the purchase price or even higher – but every lender is different so it’s important to shop around. 

Find a guarantor 

Having a family member or friend with good financial status and credit history act as a guarantor on your personal loan application could improve your chances of being approved if you are unemployed. This means they co-sign the loan and agree to accept responsibility for the repayments if you default for any reason. Your guarantor acts as a type of security, making it less risky for your lender to loan you the funds. 

You might even be able to borrow a larger amount and secure a lower interest rate if you have a guarantor on your personal loan, which means you’ll save money over the life of the loan. 

But remember, it’s a big responsibility for both of you. If you can’t make repayments down the track, your guarantor will need to foot the bill, which could damage your relationship or impact family dynamics. 

Before you take this step, make sure you can afford the monthly repayments in addition to your other bills. Are you sure your income and expenses will remain the same throughout the whole term of the loan? If your circumstances change, could you still afford this additional debt?

Do the number-crunch 

Take the time to work out how much you can afford to pay each month on top of your current expenses. You can crunch the numbers on this useful calculator on the MoneySmart website . Once you have a particular personal loan in mind, make sure you’re aware of all the loan features and hidden costs including:

  • The loan amount
  • The interest rate
  • The repayment period
  • Additional fees such as establishment, upfront late payment, account keeping, early exit and monthly administration fees. 

You might need to jump through a few extra hoops to obtain a personal loan when you’re unemployed. But it’s not impossible. Talking to a personal loan broker may speed up the process, as they will do the legwork to find a loan product that best suits your needs.

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