Personal loans are a great tool to help you cover unexpected expenses. You can use personal loans to consolidate debt, pay for a vacation, cover medical expenses or even build up your emergency fund.
To qualify for a personal loan, lenders want to see a healthy credit history and income. But your income doesn’t necessarily have to come from a traditional "job." However, you should have a reliable source of income to reduce your risk of missed payments or defaulting on your loan.
A personal loan has many benefits but it also comes with risks, mainly if your finances are unstable.
If you're looking for a personal loan, you can explore your options by visiting Credible to compare rates and lenders.
How to qualify for a personal loan
When a lender decides whether to fund a loan, they consider multiple factors including:
- Credit score
- Credit history (do you pay your bills on time, do you have a bankruptcy)
- Debt-to-income ratio (how much debt do you have compared to how much money you earn)
- Loan terms (how much and how long)
- Collateral (if you choose a secured loan)
If you don’t have a traditional job with a W2 employer, you can still qualify for a personal loan. Potential sources of income that lenders consider include:
- 1099 employment (self-employed)
- Investment income
- Social Security and/or pension
- Rental income
- Military Income
- Unemployment income
If the income is taxable, you can use it as a source of income when applying for a personal loan. When you’re ready to check out your personal loan options, visit an online marketplace like Credible.
Risks to taking out a personal loan without a job
If you plan to take out a personal loan and don’t have a traditional job, having a reliable source of income is essential to protect you against defaulting on your loan. If you miss payments, you’ll be charged a late fee. If your payment is extremely late, it could affect your credit score. Even two missed payments could drop your credit score by 100 points or more.
Multiple missed payments can add up quickly, making it more challenging to catch up. If you miss too many payments, your loan could go into default.
If your loan goes into default, your lender can ask you to repay your loan immediately. If you have a cosigner, your lender could go to them for payment. In addition to the damage to your credit score, your cosigner’s credit score could go down too.
Once you’re late on payments, you’ll likely start hearing from debt collectors. In the worst cases, your lender can garnish your wages, place a lien on your home and/or take possession of anything you used as collateral.
Personal loan alternatives
A personal loan may not be the right choice for everyone. Other options might fit your personal circumstances better.
1. A cash-out mortgage refinance: If you own a home and have equity in your property, you could take advantage of lower interest rates and opt for a cash-out refinance. A cash-out refinance lets you replace your current mortgage with a new loan for more than what you owe and the additional amount is given to you to spend. Your home is collateral with this type of mortgage, so making your payments on time is essential.
2. Home equity line of credit: Like a refinance, the line of credit utilizes the equity in your home to determine how much you can borrow. You can borrow from your line of credit as many times as you like if you have funds available. You can repay what you owe at any time and continue making withdrawals as needed. Interest is only charged on the amount your borrow.
3. Small business loan: If you run your own business, you may qualify for a small business loan. These loans should only be used to cover business expenses. Still, they can be used to cover a range of items from salary to equipment and supplies.
Once you’re ready, you can visit Credible to explore your personal loan options or other alternatives available to you.
Using a personal loan to cover unexpected expenses or help extend your spending account in uncertain times can be helpful. But you should do a lot of research and check your finances to make sure you can afford a loan, as missing payments can put you in a worse situation.
If you're trying to decide if a personal loan is right for you, visit Credible to get in touch with experienced loan officers and get your personal loan questions answered.
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