Getting a loan sanctioned from a bank can be a tedious task, as there are various conditions that must be satisfied, including creditworthiness, credit history, financial status and so on. All these criteria are used to determine the borrower’s ability to repay the loan, which is the major deciding factor on whether the loan should be sanctioned or not. A loan can only be repaid if the borrower has a source of income. Income of the individual is one factor that lenders evaluate regardless of whether the loan is secured or unsecured. With such strict guidelines, is it possible for individuals who are unemployed to get a loan?
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Loans for Unemployed
There are several banks and financial institutions that offer loans to people who are out of a job. Some of the loans available for the unemployed are:
- Secured Loans – Secured Unemployment loans are sanctioned against a collateral or security. The borrower pledges an asset to the lender, based on which the loan is sanctioned. The amount of loan depends on the value of the asset pledged.
- Unsecured Loans – Unsecured Loans allow a person to avail credit without having to pledge an asset. Interest rates are usually higher for unsecured loans, and the chances of getting one can be increased by getting a guarantor for the loan.
- No Credit Check Loans– For this type of loan, the lender doesn’t check the credit score of the individual. Interest rates are higher than regular loans and it may require collateral.
- Payday Loans – Payday Loans can be availed by an unemployed person if he anticipates that he will get a job soon. If the lender gets sufficient proof that the borrower will be employed in the near future, he can sanction a loan, albeit, at a higher cost.
- Long Term Loans–Long term loans are available for the unemployed, by pledging an asset as collateral. The longer tenure may attract higher interest, but it will help the unemployed person tide over the temporary shortfall in funds.
- Gold Loan – One of the best ways to get a loan for unemployed individuals is to take a gold loan. Documentation requirement is minimal and most lenders don’t require an income proof.
- Personal Loan – Approaching lenders for an unsecured personal loan is another option for unemployed individuals. In this case, a good credit history can really boost a person’s chance of getting a loan. If the lender is not convinced, then providing collateral for the loan may prove favourable.
- Education Loan – If the person seeking a loan is an unemployed student, then an education loan can be availed. The parents act as co-applicants to the loan, and the future prospective income of the student is considered for sanctioning the loan.
Government Loan for Unemployed
The Government of India has made many provisions for the unemployed people of the country to avail loans and stabilize themselves. Some of the schemes introduced by the government are given below:
- Pradhan Mantri Mudra Yojana for Women – This is a scheme launched by the Government of India, which looks to improve the status of women by providing them loans and encouraging them to start new ventures.
- Prime Minister Rozgar Yojana – This Government of India scheme offers loans to the unemployed, so they can start new ventures and be financially stable. Anyone above 18 years and having passed 8th grade can avail this loan. To avail this loan, the income of the beneficiary and his parents must not exceed Rs 1 Lakh a year.
- Agriculture Loans – For individuals engaged in the agricultural sector, this type of loan is very useful. The government has collaborated with any banks and financial institutions to provide loans for youth engaged in agricultural activities. This loan can be used for any agricultural project and the applicant must be above the age of 22.
- Loan Subsidy Scheme – In some states like Tamil Nadu, the state government provides 25% subsidy for unemployed youth who are graduates.
Advantages of Cash Loans
Advantages of Cash Loans are listed below:
- Loans are available for people who are unemployed.
- Individuals with bad credit score can also avail some of the loans.
- Emergency situations can be handled by taking these loans.
- Tenure is flexible, i.e. the lender and borrower can negotiate terms and agree on a suitable tenure.
- Loans are available for both short term and long term.
- Most of these loans are available without a collateral requirement.
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Disadvantages of Cash Loans
Some of the disadvantages of Cash Loans are given below:
- The number of banks and financial institutions offering loans for unemployed is very small. The borrower doesn’t have much choice.
- Most of these loans require a co-applicant or guarantor to provide loans.
- The amount of loan is comparatively small.
- The interest rates charged are higher, as the lender is taking a bigger risk.
- The terms of the loan are largely determined by the bank, and the borrower must comply if he wants a loan.
Tips to Avail Loan for Unemployed
Given below are some suggestions that can be followed to increase the chances of getting a loan approved, if the applicant is unemployed.
- Maintaining a good credit history can be one of the biggest positives for an applicant. When a lender sees a good credit score, it instils confidence in the borrower, and he supports the loan application.
- If the individual applies for a loan along with a co-applicant, it increases the chances of getting the loan. Income of the co-applicant is clubbed with the primary borrower’s income, to increase the loan amount, decrease interest rates, and provide better terms for the borrower.
- A third-party guarantee is another way that a loan applicant can strengthen his position. Lenders get a guarantee that the money will be repaid so they have no hesitation in sanctioning the loan.
- Providing collateral is another way of making sure that loan is approved. Income of the individual, credit score and so on are not serious factors for secured loans.
- While a regular job is the major source of income for many people, having an alternate source of income can boost chances of getting a loan, in case the applicant is unemployed.
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