Direct lenders seem to be the knight in shining armour when you need money to fund unforeseen expenses. They quickly peruse your financial statements to determine your affordability and then give the nod.
Unfortunately, life could be crueller than you imagined. In fact, you have heard of or experienced situations that turn the whole world on its head. Suppose you have lost your job, your laptop has conked out, and you do not have money to get it repaired.
This is a perfect epitome of a serious emergency situation, but do you think it is easy to qualify for emergency loans now? Believing in the fact that emergencies can crop up at any time and can hit anyone, lenders allowed the unemployed to apply for a loan.
Although emergency loans for the unemployed in the UK are a good way to fund your unexpected expenses, they should be a last resort.
Is it a good idea to take out an emergency cash loan for the unemployed?
Loans offered by online lenders are just a sort of financial help to bail you out when you are in a tight spot. However, it does not mean that all of them are favourable to your financial situation.
First off, you need to bear in mind that being unemployed and being broke are two different things. Although unemployment does not mean you are down and out, you are eligible to borrow money from a direct lender.
Since you are supposed to pay back the debt on time, they will check your affordability. Only if you have some money to live off is it possible to qualify for the loan. Remember that a lender is loaning but not giving away money.
Unemployment means you do not have a full-time job, but you must have a passive income source like a part-time job, freelancing, benefits and grants, dividend income, and the like. A lender will take into account your repaying capacity, but you should also be careful about it.
The burden of payment will be on your budget, so you must carefully see if you can actually pay it off. It boils down to your repaying capacity and whether or not you should take out an emergency loan during unemployment.
If you suspect that you may have difficulty paying off the debt, you should drop the idea of applying for these loans.
What are the alternatives when these loans do not seem favorable?
Chances are you fail to qualify for emergency loans, or you do not feel confident about repaying the debt. As it is an emergency, you cannot put it off. You will have to arrange funds quickly.
You may think of applying for other loans, but it is futile. They will also require a check of your affordability. You will be turned down. In this scenario, you do not have many options. You simply can turn to your parents or friends to lend you money.
Explain your true financial condition to them and make sure you will repay the debt. The benefit of seeking help from them is that you can escape paying interest. In addition, if your lender is not approving your application because of a weak financial condition, you can consider the following:
- A guarantor loan
A guarantor loan is one that allows you to arrange a guarantor with a good credit history who will be liable to clear the dues if you make a default. Hardly will anyone enter into the agreement as their credit history will also be affected in case of default.
- Borrowing less than you need
Suppose you need £1,000, and you know your current income sources cannot cover the payment when interest is added to it. You should consider borrowing less than £1,000. For instance, it could be half of it or up to £700. The rest amount you can borrow from your family or friends.
This will make it easier for you to manage payments.
How can you get the best deal on emergency loans?
Sometimes you may find it harder to qualify for a guaranteed loan for the unemployed because of factors other than your income. For instance, when you have a bad credit score, a spike in interest rates will force you to borrow less than what you need – and that is because the total cost of debt will be much higher otherwise.
Here are some of the ways to get the best deal on emergency loans:
- Have a good credit rating
Even though you have encountered claims that you “get money at the most affordable interest rates despite a poor credit rating,” you should not give a toss about them. This is just baiting to attract you. Once the money has been put into your account, you can revoke it.
If you have a good credit report, you will get benefit from it. Having a higher credit score means lower interest rates.
- Have a strong repaying capacity
Even if you are jobless, you should focus on strengthening income sources. A lender will take stock of whether you are able to cover your monthly expenses, including the debt payment.
If you have a strong financial situation, it can help offset the impact of old credit defaults (those older than three months). You are more likely to win the best deal.
Summing up
You can take out emergency loans when you are unemployed but make sure you can repay the debt. As every lender charges different interest rates, you should do proper research. Choose a lender that lends you money at a lower interest rate.
Before you get to a direct lender, you should seek help from your family or friends. Make sure you do not betray them. Otherwise, it will damage your relationship. Job loss is an unexpected situation, so you should have a backup plan to deal with it.
Use budgeting to take control of your money. Create an emergency cushion so you can live off it when you are out of work.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
