Trying to get a personal loan when you’re unemployed can be challenging. Here are some tips to help you secure a loan even without having regular income.
One of the main advantages of holding down steady employment is the ability to access unsecured credit facilities, such as credit cards and personal loans. The logic goes that with a regular income, you should have the ability to promptly pay up your bills or debt. This is why it’s comparatively easy to get a personal loan once you enter the workforce proper.
However, if you happen to be in-between jobs, that’s when you’d probably need some extra funds to tide you over while you sort things out. Yet, trying to get a personal loan without a regular salary will likely see your applications denied. That’s understandable, because without an income, how will you meet your monthly repayments?
But all is not lost. Though this is far from the ideal time to be attempting such a thing, there’s still a chance you can get a personal loan during unemployment.
Table of contents
- Personal loan options for the unemployed
- Tips to increase your chances of getting a personal loan
- Alternatives to personal loans for the unemployed
Personal loan for the unemployed – what are my options?
Those who are unemployed, including the retired, can choose from two paths to get a personal loan or secure additional funds. Which to choose depends on whether you have certain assets or not.
Cash loan (with a guarantor)
The first way is to apply for a personal loan with the help of a guarantor. This essentially makes both you and the guarantor liable for repaying the loan, which is an alternative acceptable to lenders.
Of course, this would only work if the guarantor you choose fulfils the eligibility requirements of the loan. They should also be in good credit standing so as to increase your chances of loan approval.
You can apply for a personal loan with a guarantor at banks; a common scenario under which this happens is when applying for an education loan when you’re not yet of working age.
Alternatively, you can also approach a licensed moneylender with a guarantor to take a loan. Note that some moneylenders may be willing to offer you a loan without a guarantor, but this likely only applies to smaller loans to be paid back quickly.
Cash-out refinancing (using your vehicle)
If you don’t have a suitable guarantor (or don’t want to burden anyone with the responsibility), you can try refinancing your car to generate the cash you need.
This is known as cash-out refinancing, in which you take a loan against the value of your vehicle. This loan is then repaid over a fixed duration.
Here’s a simple example of how this works. Let’s say your car’s market value is S$40,000 and you have S$18,000 remaining on the existing car loan. With cash-out refinancing, you take a new loan of S$40,000, pay off the remaining S$18,000, and keep the remaining S$22,000 as cash.
Doing this will stick you with a brand new loan of S$40,000 to be repaid over time. However, if you can get a lower interest rate for this new loan – compared to, say, higher interest debt such as credit cards – you might find cash-out refinancing a viable option.
Refinancing isn’t something to be taken lightly, as you’ll be prolonging your financial liabilities, so be sure to go through your numbers carefully – and talk it over with someone good with money – before taking the plunge.
Tips to increase your chances of getting a personal loan as an unemployed person
Go for instant approval loans
If you’ve been recently laid off, you may still have a small window to get a personal loan. The idea is to submit your application using your current payslips/CPF statements that still prove salary crediting, and getting your loan approved as quickly as possible.
As such, try to look out for loan packages with instant approval. Banks commonly offer such loans to existing customers with a pre-approved sum of credit; this also means there’s a cap on how much you can borrow – typically 90% of your credit limit.
Provided this is sufficient for your needs, instant approval banks loans would be one of your best choices.
Licensed moneylenders also advertise instant loans, but beware that such lenders charge higher interest rates than banks, and often have shorter loan tenures. This could result in high monthly repayment amounts. Be sure to check the loan terms thoroughly to ensure it matches your needs and circumstances.
Borrow a smaller amount, and/or choose a shorter tenure
You should only borrow what you need, and keep your loan as small as possible. This will help make your debt more manageable.
Additionally, it has the benefit of helping your loan application be approved quicker. Smaller loans are less likely to trigger higher-level checks or require approval from the higher-ups, which means shaving off a few steps in getting your loan approved.
By the same token, a shorter loan tenure can also help your chances of loan approval. Some lenders may regard shorter-term loans as less risky, and may be more willing to grant them.
Avoid applying for multiple loans at once
Each time you apply for a bank loan, you will trigger a credit check which is recorded in your credit profile. Having too many of such events triggering over a short time indicates you are borrowing heavily, which makes you a bigger credit risk to lenders. This dampens the chances of getting your loan approved.
You may think applying for multiple loans at once will increase your chances of getting one, but this will actually have the opposite effect. Instead, limit your personal loan applications, or space them out over time.
Show non-salary income
Another tip to increase your chances of getting your personal loan approved while unemployed is to show your other sources of income. If you have them, show your lender your alternative income sources such as rent, commissions and earnings from freelance or non-regular work.
This will give your lender a more accurate picture of your ability to repay your debt, increasing your loan eligibility.
Alternatives to personal loans for unemployed persons
Apply for a balance transfer
A balance transfer is akin to a short-term loan that comes with 0% interest for a specified period, typically 3, 6, or 12 months. As long as you repay the balance transfer within the interest-free period, you won’t have to pay any interest charges.
That’s not to say balance transfers are completely free of charge though. You’ll need to pay an upfront admin fee, which is typically 1% or more of the amount borrowed.
Also, you’ll need an existing credit card or credit line from which to borrow this balance transfer. The amount you can borrow depends on your existing credit limit.
Take a cash advance
A cash advance lets you withdraw the remaining credit limit on your credit card in cash. You can then use the cash to pay for whatever you need first.
Now, there’re caveats to consider. Firstly, you’ll be hit with a cash advance fee (customarily S$15 or 8% of the amount withdrawn), which is pretty steep. Secondly, you only have until the next statement to pay back your cash advance. Failing to do so will incur interest charges – this may be a higher rate than your credit card’s regular rate.
Hence, a cash advance is to be used as a last resort. Even then, make sure you have a plan in place to repay the amount asap.
Back to Blog 
