As a result of the lockdown imposed on South Africans due to the COVID-19 pandemic, many people have been laid off in an already-struggling economy and a high unemployment rate.
With income streams suddenly and unexpectedly cut, people have to look to other options in an attempt to keep their households afloat during this time, the easiest of which is to take out a loan.
Being employed is the foremost requirement in applying for a loan, though it’s not impossible to qualify for a loan without employment. That said, it might still be extremely challenging to find lenders willing to borrow money to people who do not have a solid income. It’s also worth noting that if lenders should loan to the unemployed, the interest rates will be elevated as there is a higher risk involved.
Nevertheless, there are still two main loan options available for the unemployed.
- Secured loans
With the need to provide a form of loan security, secured loans, whether for the employed or unemployed, rely on some sort of collateral from the borrower in order to be granted. Usually, possessions that qualify as collateral for a secured loan include (but are not limited to) your house, your car, your flat, gold and jewellery, luxury watches, or any item with a high value. Lenders need to note that secured loans come with a repossession feature which lenders can activate should a debt fail to be paid off.
The item which money is loaned against is normally kept safe and secure by the lender themselves. Therefore, it goes without saying that the item should be of such a nature that the borrower can do temporarily, and possibly permanently, without.
- Co-signer loans for the unemployed
By applying for a loan with a co-signer, you can dramatically improve your chances of being approved for a loan by reinforcing or substituting your ability to pay with someone else’s. Both parties need to understand what they’re getting into though. The co-signer should understand that should the borrower not be in a position to pay the loan back, they will be the one responsible for the repayment. At the same time, the lender should understand their responsibility to pay the loan back.
Therefore, a co-signer can be anyone that you know, whether it’s a family member, relative, or friend. However, a co-signer must have a high credit score to increase the chances of being granted a loan as well as being able to land a lower interest rate.
Although it would be optimal to apply for a loan with employment and proof of income, secured loans, and co-signer loans are still available for those in dire need of financial assistance while they’re unemployed. And while these are viable options for the short term, we urge unemployed people to be taking out a loan if all other options have been exhausted. And whatever you do, stay away from loan sharks.