Everybody faces unemployment at one point in life – either your boss makes you redundant or you step down because of some other unavoidable circumstances. After the outbreak of the pandemic, the unemployment rate has suddenly gone up. Many people have been sacked because employers are unable to bear payroll expenses.
Although some companies are hiring new staff, most people are still struggling to land a new job. It is not surprising to see many people unemployed for the last five to six months. This all is due to the pandemic. When you are out of work, you dip into your savings, and when you still need money, you have an alternative of taking out loans for the unemployed with no fees.
Although many reputed online lenders can offer you such loans at affordable interest rates, you still need to figure out if this is the right time to apply for such loans. No matter which loan you are applying for, you have to pay back the whole of the debt. Further, unemployed loans are usually paid in a lump sum or sometimes weekly, so it becomes more important to analyze your affordability because the loan’s cost quickly adds up.
If you are borrowing money when you are out of work, you should think twice. This is because the pandemic phase is not over yet. Since you will be paying more than what you borrow, you cannot risk your savings. Following are the circumstances when it can be favorable to take out such loans during the pandemic:
Your part-time job is secure
Of course, you will have to show income proof to your lender to qualify for these loans. Though you do not have a full-time job, you need to have income from another source. It can be through your part-time job, freelancing, or rental income.
If you are a freelancer, your income is subject to the number of projects. The lender likely signs off on your loan application, but you stop getting a new project from clients after that. It means you will have a sudden disruption in cash inflows. While your regular expenses are ready to hit your savings, it can be quite challenging to keep up with repayments.
Under this situation, you will likely end up with a debt trap. It is crucial to understand your financial situation before borrowing money. If your part-time job is not secure, you should avoid it.
You have got the offer letter
Unless you land a new job, you are to dip into your savings and rely on benefits. Not all people are lucky enough to get part-time work. However, note that you cannot receive benefits for more than six months, but the government has become a bit flexible if you have been made redundant due to the pandemic.
You never know when you will likely land a new job, and until then, you will have to make do with your savings. Therefore, you might need to stretch your savings. If you want to take out loans for the unemployed, you should have either enough money to afford them or do when you have an offer letter.
This at least assures you that you are about to get a salary after one month, so you can probably use your savings carefully.
You are borrowing to finance an emergency
After you lose your job, it is quite common that you borrow money to fund your regular expenses because your savings and benefits are falling short. However, experts say that you should avoid borrowing money to fund your everyday expenses.
Borrow money only when you come up with an unexpected expense and you do not have enough savings. Since you are going through a very tough time, it is essential to take stock of your current financial situation. Make sure that you change your spending behavior. Create a lean budget: it will allow you to spend only on necessary expenses.
Unless you land a new job, you should not spend on discretionary expenses. If you need to buy something, make sure that it is very urgent. If you can postpone it or manage to live without it, do not block your money in it. Since you do not know how long it can take to land a new job, you should be very careful with spending your money. It can be quite risky during the pandemic to borrow money, especially when you are out of work. If you are doing so, make sure that you will not fall behind the repayment. Loans for the unemployed can be a bit expensive loan. Therefore you should try to take them out with a reputed online lender such as AOneCredit that lends money at affordable interest rates.