Our lives are full of ups and downs, professionally and personally. There might be certain circumstances that may leave you without an income. It could be any of the situations like a closure or pause in operations of the company (like the recent case of Jet Airways), a prolonged medical condition, time between job transitions or some domestic problems which require you to avail a long absence of leave with pay.
At the same time, you can run into situations where you might need some credit to meet some need of yours. With no current income in hand, it might prove to be a tricky situation. You must have come across many individuals who resort to borrowing from the unorganized sector out of desperation. Borrowing of this sort not only involves exorbitant rates of interest, in addition, you could also be subject to unwarranted harassment.
CreditMantri, as your Credit Coach, understands your situation well and is here to provide you guidance. Through this post of ours, we bring to you some of the options that individuals without an income but in need of credit can apply for.
Can I Get A Loan Without Income?
The answer to this question might be both a Yes and a No! Technically, you could be eligible for a loan even without an income but it depends on many other associated conditions. There are many other avenues that may make you eligible for a loan even without income being drawn currently.
What are the Various Factors That May Make An Individual Without Income Eligible For Loans?
When a lender approves a loan to a borrower, they expect that the borrower pays back the borrowed sum as per the agreed schedule. To ensure this, lenders do a thorough check of various factors like credit score, income, other loans being currently serviced, your employment and residential status, etc. All these factors allow them to construct a profile based on which the lenders make a decision to approve or reject a loan.
On the similar lines, the new age fintech lenders used data, social profiles and other digital imprints of individuals to base their lending decisions on.
Additional Reading: Personal Loans for Individuals with Low Income
Other factors that could aid an individual without income to avail loans are:
Alternative Sources of Income
An individual could have many other sources of income other than a regular paying job. These could be rental income from property being let out, regular stream of income from part-time business or hobbies, pension, capital gains from sale of assets, dividend income, inheritance of property, etc. All these streams of income could be considered for a grant of loan.
Provision of Security
Individuals invest in lots of assets as a safety net or for capital appreciation. This could be anything from a house to a commercial property, gold, fixed deposits, stocks and shares, money back life insurance policies or even provident fund. When a collateral is provided, availing a loan may prove much easier as the lenders have the backing of the asset and loans are granted at a discount to the value of that asset.
Some of the popular loans that are granted based on collaterals are:
Loan Against Property: A property, which could be a retail or commercial property, could be mortgaged against a loan. A loan is granted anywhere between 50-75% of the property value based on other conditions.
Gold Loan: This is one of the better ways of putting an illiquid asset to use. The gold that is offered as a security is kept safe with the lender and returned to you after repayment of the loan. Did you know you could also use a gold loan to better your credit score?
Loan against Rent Receivables: If you own a retail or commercial property which is let out on rent, then you can use the stream of rental as a security for a loan. A tripartite agreement is drawn between the owner, tenant and the lender to facilitate this loan.
Loan against a Fixed Deposit: Fixed Deposits are one of the commonly owned assets by many individuals. It could be offered as a security for availing a loan. As against all other loans against an asset, the loan granted will be less than the value of the FD. The deposit cannot be liquidated before the repayment of the loan.
Finding a Co-applicant to the Loan
When you are in need of credit but do not have an income to support, then a loan with a co-applicant may come to your rescue. A co-applicant can be your spouse, your sibling or a parent. Based on the income of your co-applicant, you may be allowed to borrow. But there are certain points to be remembered when you are going in for a loan with a co-applicant. Non-payment of the loan can affect the credit score of the co-applicant and he/ she would be liable to make good the payment.
Additional Reading: How to get a personal loan with a co-applicant?
Approaching your Bank
If you have had a great banking relationship and also have a great credit score, it may be worthwhile to approach the bank with whom you have an existing relationship for a loan. Based on the balances in your savings account, your bank may be ready to lend to you, especially if the amount required is a small one.
Borrowing with a Fintech Lender
There are a lot of fintech lenders who allow loans but have a relaxed lending criteria than the traditional lenders. They also use other data points to ensure your creditworthiness. You may apply for a loan with a fintech lender based on your bank statements and other details.
What are the Pitfalls of Applying For a Loan Without An Income?
While there are many options for loan available to an applicant without income, loans of this nature are not without their own pitfalls. After all, lenders are taking a risk by lending to an individual without income, especially when no security is given. Some of the pitfalls that you should be ready for are:
Higher Rate of Interest: Interest is a way of compensating for the risk involved in lending. When a loan is approved to an individual without an income, the bank is incurring a higher risk, thereby higher rate of interest.
Lower Tenures: An individual without an income may be allowed to borrow for lower tenures of loan, which would result in higher EMI outgo.
Lower Amounts of Loan: You may not be approved the entire amount of loan that you have applied for, instead a much lower amount may be sanctioned.
Insistence on Auto Debit of EMIs: An EMI can be paid in multiple forms, through cheque, NEFT transfer or a direct debit. However, in cases like these, the lender may insist only on auto debit to prevent chances of delinquency on loans.
Though there are options available, it might not be easy to avail a loan as a rule. Being credit healthy and having a good credit score may make things a little easier for you. Therefore, if you don’t have an income and are in urgent need of credit, check your credit score today and ensure you are credit healthy before applying.