- Personal Finance
Loans for the Unemployed – Types of Loans and how to Secure your Finances Afterward
People lose their jobs everyday and with the global economy changing so rapidly it can leave many people suddenly out of a job because of events that happen on the other side of the world. If you are out of a job and looking for a loan to keep you going then make sure you are aware of exactly what you are getting into.
Before you Borrow
If you are out of work and have no other source of income then don’t despair. There are many things that you can do to make sure that not only will your situation improve but you will also never find yourself here again in the future so long as you follow a couple of basic steps. People borrow because they need money. This is the most obvious point to be made, however the problem lies with the word “need” and what people think they can’t live without.
Your first step is going to be to determine exactly how much money that you are going to need. To start this off if you haven’t done so already is to make time time to sit down on your own or with your family (if you have one) and create a budget. Many people are put off by this prospect but remember that having a budget will equip you to deal with such emergencies as suddenly losing your job. Loans for people with bad credit are there to get you out of trouble though you will need to change your attitude to your money to make sure this loan is a one off.
How to Reduce the Amount you will Need to Borrow.
Take a good look at where your money is going every month and start looking for things that you can cut out. Some of the best places where you can recover money are things like magazine subscriptions, gym memberships, Cable television, Mobile phone bills, Dining out and other forms of entertainment. The most important thing to remember here is that NONE of these sacrifices need be permanent and you can have them all back and more once you are on your feet again financially. Any small sacrifice now will save you from mountains of anguish in the future.
If you do this properly then you may find that you are quickly able to recover hundreds of dollars a month that you otherwise didn’t realise you were spending. If you have any existing credit card debts then this money can help to pay those off first. This in turn will help you to build up a credit record when you need to borrow money for other major purchases in the future.
Types of Loans for the Unemployed.
It can be difficult to secure a loan if you don’t have a job at the moment and depending on how long you are out of work this can be even more difficult. All lenders will be looking for some sort of proof that you will be able to pay back the amount that you have borrowed and there are different methods that they can use to do this according to what type of loan that you are offered.
An unsecured loan is so named because there is a sizable element of risk on the part of the lender. You will be borrowing money with comparatively little proof that you will be able to pay it back. As such, the loan amounts for an unsecured loan are commonly small and won’t go too far beyond $1000-2000 often they are less than these amounts. Because of the risk that the lender is willing to take on, the loan will be much more favorable to them in terms of the interest rate and repayment schedule. An unsecured loan with bad credit will likely only be approved for a very small amount.
A secured loan can be much larger because you are putting up some form of collateral against the money that you are borrowing. This can be the title or deed of something that you own including but not limited to your car, property or other belongings. These loans are much more common and also easier to secure as the lender will be able to recoup some or all of their losses should you default on your loan. The amount for secured loans for people with bad credit can be as high as the value of your collateral. Because of this the borrowed amount can be much larger and you will also have more of a say in the interest rate and the repayment terms for this type of loan.
Cash Advances From your Credit Card.
Though it is not recommended, you can in fact take out cash from your credit card if you are in need of money for emergencies or during your unemployment. This should be your last option as the interest rate for a cash advance will be higher than any other form of loan (25% is not unusual) and comes with other disadvantages. You will be paying interest on the amount as soon as you borrow it as the interest free period does not apply to cash, secondly many of your essentials like groceries and bills can be paid using your credit card without the need for cash. This is much better than taking out the cash because you don’t pay interest from the beginning and secondly you are able to transfer the balance to other cards and extend your interest free period.
Using the Equity in your Home
Now more and more lenders are advertising what is called a HELOC or Home Equity Line of Credit. In this case the loan is taken out against the equity that you have in your home. This amount works much in the same way as a credit card limit from which you can take any amount up to the amount of equity that you have in your home. The interest rate here will be tied to the interest rates of your mortgage so do be aware that it can change dramatically and also you will effectively be extending the life of your mortgage by doing this also.
Aside from the major banks there are a number of alternative lenders providing loans for the unemployed with bad credit. These commonly take shape in the way of credit unions, Insurance companies and even your own friends or relatives.
It is recommended that you borrow money from a bank or more established institution if you can because they generally have more established business practices and will tend to charge lower rates of interest. A credit union may be able to offer you a loan based on other factors that are not addressed by the bank and they may be more willing to lend money if you are able to find a reliable guarantor for your loan.
Borrowing from your family has several drawbacks including putting your loved ones at financial risk themselves and also there tends to be a weaker incentive to pay back the loan in a regular and disciplined manner as you would with a proper lending institution. Though be reminded that should you default on a loan from your family or friend there is bound to be more at stake than just money and you may find yourself in small claims court arguing against those people who were trying to help you.
How To Make Sure It Doesn’t Happen Again
Once you are back on your feet and have realize that you can happily live without many of the things that you previously thought you needed there are some things that you can do to make sure you will never need to borrow money again;
Get Rid of Bad Debt
Pay off your credit cards as soon as you can. If you have several then focus your spare cash on one at a time to pay them off quicker. You can often get a significant reduction in the interest rates if you just call the bank and tell them that you are trying to pay it off. If they have proof that you have been making your repayments regularly for more than the minimum often that will be enough to take the interest down a few percent.
Start an Emergency Fund
You should have at least 6 months of liquid cash to keep you afloat if an emergency comes along and you can’t work or are out of the job. Some recommend 3 months but 6 will give you enough breathing room to get yourself back in the workforce without too much time pressure. Make sure you build this up as fast as possible and don’t splurge on extras till you do.
Unemployment Insurance can cover all of your costs if you are unemployed or unable to work. If you are the sole provider for your family then this is essential. Keep in mind that this should by no means take the place of your emergency fund but will cover you in most instances. Look for a reputable insurer and go through the details carefully to know exactly when you can claim for this.
If you are out of work then use the time to take a course or enrol in something that is going to make you more competitive in the workforce, easier to hire, more valuable to the company and importantly harder to part with. You can take a weekend or evening course even when you are back at work. Your ongoing education will serve you well regardless of where you are working and will increase your earning potential.
People borrowing money get into trouble because they don’t have a plan of how to get themselves out of the debt before they enter into an agreement with their lender. Because of this they enter a spiral of debt which can seem impossible to get out of and negatively affect their lives and their own self worth. So make yourself the promise that this will be the last time you need to borrow money just to stay afloat and have the disciple to follow the advice above and stick to your promise. If you do then it won’t take long before you are in a position to lend rather than borrow.