What are the loan options for the unemployed?

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When you are employed and have a steady source of income it is easy to get a loan as you have a source of income to repay back the loan amount. People may think that it is not possible to get a loan when they are unemployed. But this is not the case and it is not altogether impossible to get a loan when a person is unemployed.

Borrowers who have unstable income or no job/income source can apply for a loan referred to as the unemployed loan. Persons falling under this category are students, housewives, and retired persons. Many lenders give personal loans even when a person does not have a stable job. The interest rates and terms and conditions can differ for these persons.

The various loans options for unemployed persons are as follows:-

Types of loans for Unemployed persons with no income-

Secured loans-

Unemployed persons not having a steady income or with no income can apply for a secured loan which can be availed against collateral or security. The collateral increases the trust of the lender that he can recover the amount if a person is not able to pay back the loan.

Gold loan-

When you are unemployed or have lost your job taking a gold loan is a good way to make use of the asset. Many lenders offer loans against gold at attractive rates and there is no credit score requirement to avail of this loan. The loan amount is generally 80% of the market value of the gold.

Loan for Unemployed students-

Most of the students are unemployed and look forward to getting loans to pursue their higher education. There are many lenders and financial institutions that provide loans to the students and the rate of interest and terms and conditions of the loan vary according to each institution. They provide loans against collateral and the parent or guardian is a co-applicant where their salary or income is considered. The collateral in these cases could be a fixed deposit or immovable assets like a house, bungalow, land, shop, etc. The amount disbursed is dependent on the repayment capacity of the student/parent.

Government schemes providing loan options to unemployed youth:-

Pradhan Mantri Mudra Yojna (PMMY)-

This is a scheme that provides loans for starting a small business; helps in income and employment generation and no collateral is required under the scheme. Maximum loan up to Rs. 10 lakhs can be availed with a repayment period of up to 5 years. The loan can be utilized for carrying out the following activities-

  • Purchase of vehicles such as auto rickshaws, 3 wheelers, e-rickshaws, taxis for transportation of goods and passengers.
  • Starting salons, beauty parlors, gymnasium, medicine shops, courier agents, tailor shop and dry-cleaning.
  • Manufacture of Papad, aachar, jam, bread and biscuits.
  • Khadi activity, zari and chikan work, embroidery and traditional dyeing and printing.
  • Business loans for traders and shopkeepers.
  • Activities such as bee keeping, poultry, diary, fishery, food processing and agro processing.
  • Prime Minister Employment Generation Program (PMEGP)

The Prime Minister Employment Generation Program is structured to provide self-employment opportunities for the unemployed youth and traditional artisans. It is implemented by the Khadi and Village Industries Commission at the national level and at the state level by the State KVIC directorates and State Khadi and Village Industries Board. The conditions for applying for this loan are-

  • The person should be above 18 years of age and at least 8th standard pass.
  • The maximum project cost that is admissible in Rs. 10 lakhs in the service sector and Rs.25 lakhs in the manufacturing sector.
  • Existing units and the units that have already availed loans under any scheme of Government of India or State government are not eligible.
  • The time to repay the loan ranges from 3 to 7 years after a preliminary moratorium.
  • Subsidies ranging from 15-35% of the project cost can be availed from the government.

Agriculture loan-

The government has collaborated with financial institutions and banks to provide agricultural loans to unemployed youth. The farmers can get these loans to fund seasonal crops or purchase agricultural tools or even agricultural land. Crop loans up to an amount of Rs. 1 lakh require no collateral and above this amount, collateral is required according to the terms and conditions of the bank. To apply for a loan an individual will have to be between 18 to 70 years of age and necessary assets would have to be kept as collateral with the bank once the loan is approved.

New Entrepreneur cum Enterprise Development Scheme (NEEDS)-

This is a scheme by the government of Tamil Nadu where it provides a 25% subsidy for loans to the unemployed educated youth who are graduates and helps them to become first-generation entrepreneurs.

  • The age limit is 21-35 years under general category and 21-45 years under special category (Women/ SC/SC/BC/ Minorities/Ex-servicemen).
  • The applicant should have been a resident of Tamil Nadu for not less than 3 years.
  • The person should hold a degree, diploma, ITI training or a vocational training from a recognized institution.
  • Entrepreneurship Development Institute, Guindy, Chennai will give training to the identified person.
  • The subsidy will be 25% of the project cost, subject to a ceiling of Rs.30 lakhs.
  • The repayment period is 9 years including a holiday period of 2 years.

Soft Loans-

The West Bengal Government with an aim to help unemployed people to start a new business has launched the ‘Karmasathi Prakalpa’ scheme. The features of this scheme are-

The applicant must be a permanent resident of the state of West Bengal and must have passed the 10th and 12th standard classes from the State, Central, and other recognized education boards.

  • An applicant can apply for a loan of Rs 2 lakh under this scheme.
  • The person can apply online or offline.
  • The duration of repayment of the soft loan will be 3 years.

Loans for Women-

Homemakers often have entrepreneurial dreams and they can do this with the help of loans. If a homemaker doesn’t have a steady income and is unable to meet the criteria set by the banks to get a personal loan she can apply with a co-applicant like a spouse, parents, or siblings. When the other basic requirements of the loan are met the lender will approve the loan. If you are sure that the business will be successful and bring sufficient revenues you can take a guarantor in place of the co-applicant. The guarantor should have a steady source of income and if you are unable to repay the loan the guarantor will have to repay the loan.

The other way that the women can follow is to take a personal loan by providing collateral. This could be against gold, property, shares, mutual funds, or bonds when they are not eligible for a personal loan.

Besides this, there are other options too. The homemaker can apply under the Pradhan Mantri Mudra Yojna for women or the Udyogini scheme. Udyogini Yojna is implemented by the women’s development corporation and provides loans to women from rural and underdeveloped areas. A loan up to Rs. 3 lakh can be availed to start a business categorized under 88 small-scale industries. The government gives subsidies up to 30% on loans under this scheme to make it easier for women to repay the loan.

Documents required for a loan application by the unemployed-

The documents that are required to be submitted to get an unsecured loan for the unemployed include:-

Identity Proof– Aadhar Card, Pan Card, Voter’s ID card, driving license, defense ID card, etc.

Residence/ Business Proof– Aadhar Card, Passport, Ration Card, Telephone bill, Electricity bill, Water bill, Voter’s ID card.

Factors influencing loan availability for the unemployed-

  • A high credit score is considered important by the lender to give you a loan. CIBIL score above 750 helps greatly in securing a business loan.
  • Secured business loans are easier to get than unsecured ones. Collateral assets like gold, shares, mutual fund or insurance policies can be used to get a loan.
  • If you have a good relationship with the lender it will give him confidence to lend you a loan.
  • A good way to get a business loan is to apply where the government or third party provides security.

When you are unemployed you can apply for a personal loan with a co-applicant whom you trust. This would improve your chances of getting the loan with more favorable terms. The joint income is taken into consideration and if the co-applicant has a good credit score it improves the chances of your eligibility. It is always better to try for a loan from a bank in which you hold an account. The bank will be considerate and recommend ways on how you will repay the loan.

There are many ways you can avail of a loan even when you are unemployed. It is always better to study and compare the interest rates and the time period that can be availed for paying back the loan.

dbssethi

After working for many years in the Marine industry it was becoming clear that I was filled with an entrepreneurial spirit and wanted to pursue my own passions and dreams.
Over the years of studying and dealing with my own finances, I wanted to share my experiences with other people. Personal finance is something that excites me the most and I am very passionate about it.
Entering the stock markets during the Harshad Mehta heydays and then the collapse of the market led me to search for answers and I read a number of investment books and with time was able to identify multibagger stocks. Along with my job I was also working as an insurance and mutual fund advisor but managing both was proving difficult. As I had saved sufficient money I thought of taking early retirement and here I am to talk about my financial experiences.

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