When a person can demonstrate steady employment status to a lender, finding a loan of one kind or another is always possible. However, loans for the unemployed are less abundant, and some creativity is necessary to find one.
Create More Debt
A credit card cash advance can be an immediate source of funds if the account is paid down or has a zero balance. Cash from a creditor is still debt, however, so do not take money out which will be difficult to pay back. An alternative to using plastic is to take out a loan against a 401(k) plan. The account owner can take out a large percentage of the existing funds at a low interest rate and pay them back over a specified time period.
Funds taken out of the 401 (k) plan must be paid back, even though it is technically the borrower’s money. The consequences of non-payment may be taxation and an additional 10% early withdrawal penalty. Consult with the fund representative for complete details.
Pawn Shops and Unemployment
Pawning items of value is a fast method to acquire cash. The pawn shop estimates the value of the item and will hold onto the physical property until the loan is repaid; if it is not, the item is put into inventory and sold. Pawns work well for people who want their items back, and are confident they can repay the loan. An alternative to generating more debt is to sell items on an auction site, hold a garage sale, or utilize the classifieds.
Unemployed loans are also available if the person is receiving government assistance. These lenders are scarce, however, and the cost of the loan may be high compared to the amount borrowed. As with a payday loan, the borrower will need to tie the money to a bank account; in this case the same one unemployment benefits are sent to.
Homes & Co-signers
In times of need, homeowners who have recently become unemployed can access the equity in their home. Taking out a home-equity credit line is the same as opening any line of credit, except this one is based on and limited by the available equity. There is no proof of employment necessary, and once the debt has been cleared, another line can be opened as long as there is equity in the home. If the home loses value, the loan still needs to be repaid, so as with any leverage, use it wisely.
Another option to explore is asking a parent, relative, or close friend to co-sign for a loan. This is common practice, but be sure to get the agreement in writing. Creating a legal contract demonstrates a willingness to repay, and maintains objectivity in the transaction.
Tips to Remember
Try to remain objective during this time and avoid difficult debts. If it is uncertain how the money will be repaid, do not take out a loan. The consequences of non-payment to a pawn shop will be the loss of valued items, and the consequence of defaulting on a family member or co-signed loan could be worse. Borrowing carefully will ensure these options will be there again when needed.
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