Surprisingly, yes. It turns out unemployed people can indeed apply and qualify for payday loans.
But, get this – it’s not all good news. Such a loan comes with a huge caveat – one that could
ultimately prove to be your biggest financial undoing.
This article provides insights into the whole thing – how payday loans work, the pros and cons of
such loans (particularly to the unemployed), plus all the alternative loan options for unemployed
people. Most importantly, though, the guide answers this one critical question – is it a good idea
to get a payday loan while unemployed?
What are Payday Loans?
Payday loans are some form of short-term emergency loans, which borrowers are usually
expected to pay when they receive their next paycheck. And unlike traditional bank loans,
payday loans do not require a formal employment record, a good credit score or any form of
Lenders, instead, evaluate the eligibility of borrowers based on their income sources. Applicants
are just required to prove that they have some form of income benefits. In fact, in some states,
lenders even accept submissions such as job contract offers, sale agreements, or maybe
evidence of upcoming inheritance.
On the flip side, however, it just so happens that payday loans are always accompanied by high
levels of interest, and hidden provisions that charge extra fees. Borrowers consequently pay
hundreds of percent in interest, plus additional charges in the form of processing fees, rollovers,
and late repayment fees.
While the precise rates and charges vary from one state to another, data published by the
Consumer Financial Protection Bureau shows that a typical two-week payday loan attracts a fee
of $10 to $30 for every $100 borrowed. That’s astronomically expensive, as even a seemingly
low rate fee of $15 per $100 eventually translates to 400% in annual interest.
It’s because of these harsh terms that some states have moved in to curb predatory lending. At
the moment, payday loan sharks operate openly in just 36 states. But, that’s not to say that the
rest have outrightly banned them. They’ve mostly just capped the interest Annual Percentage
Rate (APR) to make it difficult for predatory lending to remain profitable.
Can You Get a Payday Loan if Unemployed?
While banks are known to reject loan applications from unemployed people, payday loan
lenders have their doors open to everyone. You just need to demonstrate that you have a
regular source of income, depending on your state’s regulations.
Unemployed borrowers can, for instance, include the following as income sources in their loan applications:
● Unemployment benefits.
● Spousal allowance.
● Veteran benefits.
● Trust benefits.
● Alimony benefits.
● Dividend payouts.
● Government annuity payments.
● Disability income.
● Pension funds.
● Social Security benefits.
What’s more, the lenders don’t even bother to review their borrowers’ credit histories. Once an
application is submitted with the required personal details and proof or income, it typically takes
only a matter of hours to approve the payday loan.
Because of these favorable eligibility terms, payday loans have become increasingly popular
among the unemployed in America. As of 2012, unemployed individuals accounted for 14% of
all payday loan borrowers, which was quite disproportionate compared to the unemployment
rate of 6% among U.S. adults.
As for the corresponding earnings, it turns out the average borrower has a yearly income of
about $30,000. The loans don’t help them out that much, though – as they confess to ultimately
paying more in fees than they originally borrowed in credit.
Loans You Can Get While Unemployed
Thankfully, a payday loan isn’t the only credit option for unemployed people in the U.S.
A personal loan, for example, would be a great alternative to payday loans. They are not only
less risky, but also give you the chance to borrow more – and the funds, if approved, are usually
released within hours after application.
And while payday loans come with short-term repayment terms – usually weeks – personal loans
are much more flexible. The lending banks allow their borrowers to repay the loans in years,
and at far lower interest rates than payday loans. So, of course, it becomes easier to repay your
loan in full.
It’s worth noting, though, that unemployment benefits won’t necessarily help you when it comes
to securing personal loans. Lenders do not count it as regular income because it’s usually
On a brighter note, however, at least they might be open to considering disability income,
alimony benefits, child support payments, dividend payouts, and social security benefits. You
might want to check with your local bank to confirm.
Other than that, personal loan lenders tend to review their borrowers’ credit history. To secure
the loan at a competitive interest rate, one is required to have a good credit store, along with a
low debt-to-income ratio.
Loans from Family and Friends
Another reasonable option is to simply borrow a soft loan from family or friends. Such loans are
pretty straightforward, as the terms depend on the parties involved.
In particular, borrowers should agree with their lenders on how the loan will be repaid, the
interest rates to be applied, and the loan repayment period.
Do You Really Need a Loan?
Before you proceed to apply for a loan while unemployed, you should take a moment to really
think it through.
While unemployment might have placed you in a desperate situation, the fact of the matter is,
borrowing a loan without a proper repayment means will only make things worse.
Payday loans, in particular, have a reputation of inundating people with bad debt. So much so
that half of all outstanding payday loans today happen to be part of a loan sequence that runs
for at least 10 borrowing cycles.
So, the best approach here would be avoiding the loans altogether. You should, instead, come
up with a reasonable budget based on the income benefits you’re receiving while unemployed.
It might seem challenging, but at least it won’t put you neck deep into a debt trap.
And if you’re already struggling with debt, now’s not the time to add the torture of another loan.
You should, alternatively, get in touch with us to schedule a free consultation, and we’ll save
you from the misery.