loans
Business, Finance

Loans for the Unemployed: A Saviour or a Debt Trap?

Sharing is caring!

Loans have become an integral part of our life. Majority of people rely on debts to fund their unforeseen expenses. Creating an emergency cushion for a rainy day is complicated because of high cost of living and stagnant wages.

Direct lenders have come up with various loan offers so that you can fund your unexpected expenses as quickly as possible. With online lending, it has become plausible to lend money to borrowers with impaired credit standing. In fact, you can take out loans for the unemployed with bad credit.

Many direct lenders do not lend money to the unemployed as they are considered with very high default risk. Only a few lenders on the market accept applications from the unemployed. As long as you have an income source tyo show your repayment capacity, the lender will never hesitate to help you tide over.

Some people find that loans for the unemployed push them on the verge of financial collapse and eventually they fall into a debt spiral.

Loans for the unemployed come with several advantages

Loans for the unemployed mainly aim to help you tide over when you have lost your job and you are running out of money. Despite receiving unemployment benefits from government, it becomes sometimes complex to manage all recurring expenses, let alone emergency.

Traditional lenders do not entertain the unemployed as they want good credit scores as well as solid source of income. Without a proof of full-time job, you cannot borrow money. With direct lenders, you can get funds even if you do not have a functional bank account as the lender may schedule a meeting with one of the representatives at your home.

Unemployed loans also target the disabled. Delivering cash at your doorstep mainly prevents you from the hassle of taking out a loan.

These loans require neither guarantor nor collateral, so there is no risk of getting into a headache of finding someone with a good credit rating and losing your security in case you fall behind repayments.

A lender will not restrict you from using funds the way you want. You can use money for any purpose. The lender will decide the disbursal limit after perusing your income statement. This will keep you from falling into a debt trap.

Be wary of fraudulent offers

A trustworthy direct lender will always take into account your financial circumstances before determining the size of loan you can afford. Some direct lenders do not prefer considering you income statement and lend you what you mention in the loan application. This is where you get into a predatory cycle of debt.

When you apply for an unemployed loan, make sure that the lender runs a soft credit check and looks over your income statement. When they ask you to submit your financial documents, mention all income sources so that they can accurately decide your affordability.

Interest rates may vary from lender to lender because of their own policy. Loans for the unemployed with bad credit generally carry higher interest rates than standard personal loans because of high default risk.

You should compare interest rates so that you choose the best deal. The lower the interest rate, the better it is.

Another reason for getting into a debt cycle is you often forget to take into account your affordability. Checking your repayment capacity is also your responsibility. The repayment length of unemployed loans is very small and you are to pay interest on top of the principal. It means double financial burden.

Of course, you will pay off this debt from your available funds. Income is stagnant and expenditure has gone up, so you have to cut down on your expenses. Create a budget to analyse your monthly outgoings and incomings. This will help you have a n insight into your net worth. Make sure that you have left some money after deducting all of your monthly expenses. Otherwise, a debt will become a severe torture.

The next step is to look over your discretionary expenses. Peruse the list of your monthly expenses and find out unnecessary expenses. The more you whittle down, the higher the savings will be. You will be able to use this money to pay off your debt.

The bottom line

Loans for the unemployed do not aim to throw you in deep water. These loans have been made to help you meet unforeseen expenses unless you land a new job. The problem arises when you take out a debt for your impulsive buys or for anything other than unexpected expenses. Financial experts suggest that you should take out a short-term loan only when you need money urgently. You should also develop a habit of building an emergency cushion. If you continue to set aside even 10% of your monthly income, you will have savings three-months worth of cost of living in a couple of months provided you do not dip into them for any regular expenses.

ritu362

Hi I am Ritu, an Indian blogger living in Vadodara, working as a Digital Marketing Manager in an IT company by profession, but a Beauty, Fashion, Business and Lifestyle Blogger by passion. I started The Every Lady in 2017 to encourage women all around the world to not be restricted with predefined styles and take chances in life.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *