Obtaining a loan is very difficult or hardly possible for the unemployed. If it does work, the interest is usually extremely high. Why is that?
To receive a loan, the borrower must meet certain requirements. Basically, a borrower must be of legal age. Furthermore, the lenders require proof of a regular income and in most cases obtain Credit bureau information. The banks and other lenders want to get an impression of the creditworthiness, also called creditworthiness.
Loans for the unemployed pose a high risk of default
From their point of view, this is necessary because they want to make sure that the loan and interest are repaid and that they do not default. The monthly income is used to determine whether a borrower has the means to make a living and also a monthly loan installment. Since income is usually lower during unemployment than at the time of employment, difficulties could arise. The situation becomes even more difficult if you are unemployed and cannot find a new job in the short term, since only basic security is then transferred from the state. Then the financial scope is extremely limited.
Because of this impending spiral, loans for the unemployed pose a high risk of default. Should an unemployed person nevertheless receive a loan, the lender will have to pay a high price for this increased risk. This is mostly counterproductive for the borrower, as the spiral of debt is intensified by the high additional monthly costs. Caution should also be exercised when arranging loans from abroad, since some unfortunately only want to gain their own benefit from the needs of the unemployed and either collect commissions in advance and then no longer report or simply collect personal data and then sell it .
Despite unemployment, borrowing is not impossible, but it carries great risks. If a new job is not found quickly, the worst case scenario is that of private bankruptcy.
Borrowing from a creditworthy guarantor who can step in to help the lender in an emergency is an alternative and lowers loan interest rates. The provision of collateral (such as life insurance or a share account) is also a good argument for most lenders to grant a loan to an unemployed person on fair terms.