Can You Get a Payday Loan While Unemployed?

Surprisingly, yes. It turns out unemployed people can indeed apply and qualify for payday loans.

But despite this, it’s not all good news. Payday loans come with a huge caveat (spoiler: they are expensive) that could ultimately prove to be your biggest financial undoing.

The most important question to ask yourself before you take out a payday loan is this: Is it a good idea to get a payday loan while unemployed? Read on to learn more.

Payday Loans: In a Nutshell

Payday loans, including online payday installment loans, are short-term emergency loans that borrowers are usually expected to repay when they receive their next paycheck. And unlike traditional bank loans, payday loans do not require a formal employment record, a good credit score or any form of collateral.

Instead, lenders evaluate borrowers’ eligibility based on their income sources. Applicants are only required to prove that they have some form of income. In fact, in some states, lenders even accept such submissions as job contract offers, sale agreements, or maybe evidence of upcoming inheritance.

On the flip side, however, it just so happens that payday loans are always accompanied by high interest rates and hidden provisions that charge extra fees. Borrowers end up paying APRs as high as 600% (and sometimes even more), plus additional charges in the form of processing fees, rollovers, and late repayment fees.

While the precise rates and charges vary from state to state, data published by the Consumer Financial Protection Bureau (CFPB) shows that a typical two-week payday loan costs $10 to $30 for every $100 borrowed. That’s astronomically expensive, as even a seemingly low rate fee of $15 per $100 translates to a 400% annual percentage rate.

Because of these harsh terms, some states have moved in to curb predatory lending. As of Jan 1., 2023, payday lenders operate openly in just 32 states. Some states have prohibited them, while others have capped the annual percentage rate (APR) payday lenders are allowed to charge, making it difficult for the loans to remain profitable.

READ MORE: What you need to know about payday loan interest rates

Can You Get a Payday Loan if Unemployed?

While traditional financial institutions regularly reject loan applications from unemployed people, payday loan lenders open their doors to everyone. You just need to demonstrate that you have a regular source of income, depending on your state’s regulations.

• Unemployed borrowers can, for instance, include the following as income sources in their loan applications:
• Unemployment benefits
• Spousal allowance
• Veteran benefits
• Trust benefits
• Alimony benefits
• Dividend payouts
• Government annuity payments
• Disability income
• Pension funds
• Social Security benefits

Moreover, the lenders don’t even bother reviewing their borrowers’ credit histories. Once an application is submitted with the required personal details and proof of income, it typically takes only a matter of hours to approve the payday loan.

Because of these favorable eligibility terms, payday loans have become increasingly popular among the unemployed in America. As of 2012, unemployed individuals accounted for 14% of all payday loan borrowers, which was disproportionate when compared to the unemployment rate at the time, which was 6% of U.S. adults. It’s unclear what kind of impact the coronavirus pandemic has had on the number of people taking out payday loans while unemployed or on furlough. However, government stimulus checks were intended to help reduce that need.

As for the corresponding earnings, the typical payday loan borrower has an average annual income of about $30,000. The loans don’t help them out that much, though — as many borrowers will admit they ultimately end up paying more in fees than their original loan amount. In fact, the vast majority of payday loan borrowers end up regretting their original loan.

READ MORE: Payday loan organizations

Other Loans You Can Get While Unemployed

Thankfully, a payday loan isn’t you’re only credit option if you’re unemployed.

Cash advance apps: Cash advance apps are very similar to payday loans. They’re short-term loans for small dollar amounts that are usually repaid on your next payday. The difference lies in the fees and interest rates. Most cash advance apps don’t charge interest or fees. Instead, they ask borrowers to “tip” them, and some charge a small monthly fee, sometimes as low as $1 per month. This is a much more affordable way to borrow if you just need some cash to carry you through until payday. Dave and Earnin are good options, but there are plenty of others to choose from.

Payday Alternative Loans: If you have an account with a federal credit union, you might be able to apply for a payday alternative loan (PAL). Loan amounts range between $1 and $2,000 and are repaid in installments for one to 12 months. Interest rates are capped at 28%, which is far cheaper than a traditional payday loan.

Personal loans: A personal loan, for example, is a great alternative to payday loans. They are less risky and give you the chance to borrow more — and the funds, if approved, are usually released within hours after application. And while payday loans come with short-term repayment terms — usually the next payday — personal loans are much more flexible. Lenders allow their borrowers to repay the loans in years at far lower interest rates than payday loans. this, in turn, makes it easier to repay your loan in full.

Unemployment benefits won’t necessarily help you when it comes to securing personal loans, though. Lenders do not count it as regular income because it’s usually temporary. But lenders are often open to considering other income sources, including disability income, alimony, child support payments, dividend payments and social security benefits. Other than that, personal loan lenders tend to review their borrowers’ credit history. To secure the loan at a competitive interest rate, one must have a good credit score and a low debt-to-income ratio. There are some options for bad credit borrowers, however.

READ MORE: Step-by-step guide to payday loan consolidation

Take on a side hustle: The gig economy is booming thanks to the COVID-19 pandemic. Got a nice car? Try driving for Uber or Lyft. Car a bit less nice? There are plenty of food delivery services looking for drivers. Etsy stores, Upwork, pet-sitting, babysitting, or even part-time retail work can also be good options to help you earn a few bucks to get you through your immediate crisis.

Loans from friends and family: Another reasonable option is to simply borrow a soft loan from family or friends. Such loans are pretty straightforward, as the terms depend on the parties involved. In particular, borrowers should agree with their lenders on how the loan will be repaid, the interest rates to be applied, and the loan repayment period.

READ MORE: Better payday loan alternatives

The Bottom Line

If you’re unemployed, take some time to think it through before you apply for a payday loan.

Though unemployment might have left you in a desperate situation, the truth is that borrowing money without the means to repay it will only worsen your financial situation.

Payday loans, in particular, have a reputation for overwhelming borrowers with debt. So much so that half of all outstanding payday loans today are part of a debt cycle that runs for at least 10 payday lending cycles.

The best approach is to avoid the loans altogether. Instead, try to set a reasonable budget based on your income while unemployed. It might seem challenging, but at least it won’t put you neck-deep into a debt trap.

And if you’re already struggling with debt, now’s not the time to add the torture of another loan. Instead, contact us to schedule a free consultation, and we’ll try to help you improve your financial well-being.

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