A Guide to Loans for the Unemployed With Bad Credit
What’s easiest to get when you already have it? This riddle’s answer isn’t hard to figure out: It’s money. When you’ve got a steady paycheck, cash in the bank, and a great credit score, lenders are more than happy to line up at your door with offers.
But what do you do when none of those are true? Without good credit or current employment, how can you get an urgent loan to help you weather a rough patch or create a new opportunity?
Let’s take a look at options for loans for the unemployed with bad credit scores.
Can I Get a Loan If I’m Unemployed?
In short: Yes, it’s possible.
Although lenders use complex, proprietary calculations to approve loans and set terms, they tend to boil down to a few common factors. Does the borrower have:
- A current source or history of dependable income?
- A history of paying off debt?
- Collateral that can be taken in lieu of money if they don’t pay off the loan?
If you can answer yes to any of these, your chances of getting an emergency loan automatically increase even if you’re unemployed.
What’s the Lowest Credit Score You Can Have for a Loan?
FICO credit scores (the most popular credit-scoring model) range from 300 to 850, and lenders use them to predict how likely a borrower is to repay a loan amount based on their past behavior.1
Here’s a breakdown of how scores are grouped:2
- Exceptional credit: 800 – 850
- Very good credit: 740 – 799
- Good credit: 670 – 739
- Fair credit: 580 – 669
- Poor credit: 300 – 579
To look at an example scenario, if you’re researching whether you qualify for a mortgage refinance, you’ll need a minimum credit score of:2
- 500 for an FHA loan
- 620 – 720 for a conventional loan, depending on loan type and lender
- 620 for a VA loan (no VA minimum but most lenders require 620 or higher)
- 640 for a USDA loan (no USDA minimum but most lenders require 640 or higher)
In general, the typical minimum credit score to qualify for a personal loan ranges from 580 to 660, depending on:3
- The type of lender: bank, credit union, online lender, or peer-to-peer lender
- The amount and duration of the loan term
- Whether it’s a secured loan or unsecured loan (with collateral you own)
8 Loan Options for the Unemployed With Bad Credit
What types of fast loans should you pursue, and with which lenders? Here’s a round-up of options for securing a hardship loan for bad credit:
#1 Credit Union Loans
Belong to a credit union? If so, it should always be the first stop when you’re in need of a loan approval. Although they don’t specialize in bad credit loans, they typically operate under a charter that focuses on serving their members rather than maximizing their profits. Compared to traditional banks and other types of lenders, they may have:
- Easier-to-meet lending standards
- Lower interest rates
That lower interest rate is nothing to sneeze at—if your credit union is federally chartered, it’ll have an interest rate cap of 18% APR.5 Other lenders can charge as high as 36%, so this limit can go a long way to helping you avoid predatory lenders.
#2 Co-Signed Personal Loans
A family member or friend who’s willing to cosign a loan for you is a valuable resource.
A co-signer is legally obligated to pay off the full amount of a debt if the primary borrower falls through, so it’s a big ask. However, those close to you may be more aware if your credit history and employment circumstances have underlying reasons and if you can be counted on to make your unemployed loan payments.
If you go this route, your co-signer will need to have a better credit history and score than you, along with dependable income or collateral to help offset your lower borrower profile.
#3 Home Equity Loans and HELOCs
Are you a homeowner? If you own at least 15% equity, you may be able to qualify for a home equity loan or a home equity line of credit for up to 80% – 90% of your equity. Most lenders will look for:
- A minimum credit score of 6205
- A maximum debt-to-income ratio (DTI) of 43% – 50%
- Consistent and timely history of mortgage payments
- Stable employment and income history
Wait—why did we include that last bullet in a list of loans for unemployed individuals with bad credit?
Even if you’re unemployed with bad credit, a no income verification home equity loan is a viable possibility. While the requirements above are typical, you can still find a limited pool of lenders who don’t employ a specific credit score minimum or income minimum. And if you’re currently unemployed but do have an employment history over the past two to three years, that can help boost your application. You’ll find fewer lenders to choose from and higher interest rates, but if you shop around, you can still borrow against your equity, even with bad credit.
#4 Cash-Out Refinance
Another option for homeowners is a cash-out refinance. With this lending option, you take out a new mortgage that pays off the entirety of the current mortgage and provides you with a cash amount based on your owned equity. It essentially gives you cash in exchange for moving you backward on the timeline to pay off your home.
In general, cash-out refinance credit score minimums are lower than home equity loans and HELOCs but higher than regular (rate and term) refinancing.
You’ll also need to calculate the following into your total costs:
- Monthly private mortgage insurance (PMI) if your total equity drops below 20%
- Closing costs
- Higher monthly payments if the new interest rate is more than in your original mortgage
Your best bet for a cash-out refinance with bad credit is:
- Using an FHA Streamline Refinance with cash out if you already have an FHA mortgage6
- Qualifying for a new FHA or VA cash-out refinance
- Applying with a non-occupying co-client (like a co-signer on a personal loan)
#5 Retirement Fund Loans or Withdrawals
If you were formerly employed and still have a 401k or another type of retirement plan, you may be able to access or borrow money from it in some circumstances—such as family death or medical costs, education, or repairing or preventing foreclosure on your home. If you retired without reaching your financial goals, learning about loans for seniors with bad credit could be useful.
The downside is that you’ll pay for it with:7
- Income taxes on the withdrawal
- Fees such as a 10% penalty if you’re under 59 ½
- A significant dent in your long-term retirement savings
#6 Title Loans
Have a car that’s paid off? If you have a clear title to a vehicle, you can take out a short-term title loan based on the current value of your car. But you should prioritize some of the other solutions on this list—most title loans are for 30 days, and if you can’t repay on time, you’ll be kissing your car goodbye.
Secured loans (those backed by collateral that the lender can take if the debt isn’t repaid) tend to have better rates than unsecured loans. So, why do title loans come with fairly high terms, especially those for longer than 30 days? This is because there’s still risk in how much the lender can sell your car for, plus the cost and hassle of getting their hands on it and putting it up for sale.
If peer-to-peer micro-lending is legal in your state, it’s worth checking out this newer type of lender. While they have credit score minimums of 600, these three platforms also allow you to add some personal statements and explanations to help support your application:8
- Lending Club
If you’re unemployed or have poor credit, getting a loan can be challenging, but fortunately, not impossible. There are options available to you from Credit Union Loans, Home Equity Loans and HELOCS, Cash Out Refinance and more. Find out more about each one and decide how best to move forward with your situation.
- Consumer Financial Protection Bureau (CFPB). What is a credit score? https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-score-en-315/
- Forbes Advisor. What Credit Score Is Needed To Refinance My Mortgage? https://www.forbes.com/advisor/mortgages/refinance/credit-score-to-refinance-mortgage/
- LendEDU. What Credit Score is Needed for a Personal Loan? https://lendedu.com/blog/what-credit-score-do-you-need-for-a-personal-loan
- NerdWallet. How to Get a Personal Loan With Bad Credit. https://www.nerdwallet.com/article/loans/personal-loans/get-personal-loan-bad-credit
- Bankrate. How to get a home equity loan with bad credit. https://www.bankrate.com/home-equity/home-equity-loan-bad-credit/
- Investopedia. Refinancing a Mortgage With Bad Credit. https://www.investopedia.com/refinancing-a-mortgage-with-bad-credit-is-possible-5199177
- IRS. Retirement Topics – Exceptions to Tax on Early Distributions https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions
- Forbes Advisor. Best Peer-To-Peer Personal Loans Of 2022. https://www.forbes.com/advisor/personal-loans/best-peer-to-peer-lending/