Loans are rarely given to requesters who cannot readily prove a source of income to lenders. However, no-income loans are loans given to a borrower who does not have a traditional source of income. These loans are generally approved if the requester has liquid assets such as cash or other property that can be sold fairly quickly.
If you are in need of money but don't have the income to be approved for a traditional bank loan, it's important to know how you can get one and understand the criteria lenders will have for approving one.
What Are No-Income Loans?
Most lenders require you provide some proof of income before they’ll let you borrow money. However, no-income loans are products some lenders may offer if you have a way to prove you can repay the debt with no earnings from employment.
How No-Income Loans Work
These loans work similarly to other types of loans. They mainly depend on proving that you will be able to fulfill your obligation; usually, this is done by demonstrating alternative sources of income.
No-income loans require you have some alternative method of paying the loan back with interest. Lenders will want to see your credit history, bank accounts, and proof of any assets to demonstrate that they will get their money back.
For instance, if you recently retired, you have no income from employment. You might have a pension or 401(k) distributions you are receiving, which could be enough for you make payments on a loan. If you also have a home, vehicles, and other belongings that have value, you could approach a lender fairly sure that you could demonstrate enough capital or assets to receive an approval.
The more financial stability you demonstrate to a lender, the more likely you are to get a loan application approved.
The lender would look over your finances, assets, credit score, and distributions and determine the level of risk to their firm if they were to approve your loan. If they are confident you are able to pay them back, they would approve the loan.
Types of No-Income Loans
If you are in need of a loan and have no other option but to choose a no-income loan, it's important to understand the types, who is eligible for them, and what types of income or assets you can use.
There are three types of no-income loans in use:
- Stated income, verified assets (SIVA)
- No income, verified assets (NIVA)
- No income, no assets (NINA)
- No income, no job, no assets (NINJA)
A SIVA loan can be approved for someone who has income, although not enough for a loan—but has enough verified assets to put up as collateral for a lender to feel comfortable loaning money to them.
Of the three types, the NIVA loan is the one generally available to consumers without traditional or alternative incomes. It requires that assets be placed as collateral, then verified for value by the lender before a loan is approved.
NINA loans are generally reserved for real-estate investors who have rental income—of which they must demonstrate enough for loan approval.
NINJA loans used to be common in the mortgage industry, but regulations have made them much harder to obtain.
A combination of income and assets can help you achieve approval for a no-income loan by reducing the amount you need to borrow, or by establishing that lenders will be paid back.
Acceptable Income and Assets
There are many different types of assets, monetary compensation, benefits, or alternative income that can be used to show you are able to make payments. Some assets might include:
- A vehicle
- A house or real estate
- Government bonds
- Appraised valuables
Some of the different types of income you can use consist of:
- A retirement account (including a pension)
- Child support
- Unemployment benefits
- Social Security benefits (retirement or disability)
- Veterans Administration (VA) benefits
- Side gigs or a business startup
- Royalty payments
- Tip income
- Partner income
- Dividend payments or other investment income
- A job offer with offer and acceptance letter
Disadvantages of a No-Income Loan
Even if a lender thinks you’re likely to repay your loan, they still might question your ability to pay. As a result, you might have to pay extra to make up for the risk the lender is taking. No-income loans can come with a number of disadvantages, such as:
- You’ll probably pay much higher interest rates when you get a no-income loan.
- In many cases, you won’t be eligible for higher loan amounts, even if you have a co-signer.
- Often, no-income loans have repayment terms that reflect months, rather than the years you might get to pay off other kinds of loans.
- You’re likely going to pay higher fees.
Before you get a no-income loan, it’s important to understand you will pay extra as a result of the increased risk to a lender. They’ll do their best to make sure you’re on the hook for more frequent payments at a higher rate to ensure they get as much money as possible in a short period.
Carefully consider your resources and all options before you decide on a no-income loan.
Alternatives to No-Income Loans
If you're not able to receive approval for a no-income loan, there are other possibilities. Before you resort to a no-income loan, consider some of the other options you have.
Ask a Family Member or Friend for a Loan
Instead of going to the bank, see if a loved one can help you out. You’ll get better terms. Just make sure you repay the debt, or you could lose an important relationship.
Check around your community to see if there are resources available to those in your circumstances. A food pantry, indigent utility funds, or religious congregations might be able to help you cover your expenses in the short term without the need for a loan.
Get Creative in How You Make Money
Consider becoming a rideshare driver. You can cash out every day, allowing you the chance to earn quick cash. Additionally, you could offer handyman services, pet sitting, or child care services to earn extra money quickly. Or consider renting out a room in your home or selling unneeded items.
If you have equity built up in your home, you might be able to get a home equity line of credit (HELOC), where you are able to treat your home as a credit card. You're given a limit, an interest rate, and payment dates. However, this option should be used with caution; you increase the risk of losing your home should you default on the payments because lenders can force you to sell your home to pay the debt.
- No-income loans are loans for people with less-traditional income. They need to be secured with either collateral or another guarantee of repayment.
- No-income loans are best if used only in situations where they are absolutely necessary.
- Collateral could be liquid assets such as cash, cash equivalents, or other property that can be sold quickly.
- There are alternatives to these high-rate loans that might be more beneficial.