I’m about 1.5 months into a period of unemployment. I’ve been on a couple of interviews, and I’m hoping things turn around soon, but they say necessity is the mother of all invention. Well, I have a business idea that I don’t have the means to start, but I’d like to see it happen nonetheless.
So, I’ll start by asking what current employment necessarily has to do with long-term ability to pay? 3 months ago, my employment status was employed. I wasn’t expecting I’d be unemployed right now myself. I was getting letters in the mail daily from finance companies wanting me to take loans. Knowing what I know now, I would have.
What are the options for unemployment right now? Dip into that 6 month rainy day fund almost nobody has? Cash out your retirement account with the requisite warning that it’s going to cost you dearly in the future? Start selling everything at under market value because you need the money? Get evicted and put out on the street a month before you land the job and would have been able to pay rent long-term for years to come?
I’m proposing that current unemployment doesn’t have much to do with long-term ability to pay. Why not offer loans to people based on their longer-term median income? Maybe charge a bit more interest due to the risk for during the term of unemployment and convert it to a standard loan as soon as they get a job. Defer the payments for a bit more than the median amount of time it takes to get a job in their industry. There are already companies lending based on industry of employment rather than credit scores. A good credit score going into unemployment should be an indicator the person cares about paying their debts.
This could make unemployment tremendously less stressful and keep people from having to liquidate assets for a short-term problem. I don’t know that it would really have much more risk than lending to employed people. Being employed today is no indicator of being employed tomorrow.
Of course it has risks, but all lending does. The ceiling on the amount extended could be based on ability to pay when employed with standard debt-to-income requirements.
I think it has potential.