Hardship Loans: How to Borrow Money During a Financial Setback
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What is a hardship loan?
7 hardship loans for bad credit
Lender | Loan amount | APR | Min. credit score | Min. income requirement |
---|---|---|---|---|
$2,000 - $35,000. | 9.95% - 35.99% . | 550. | $1,200 net income per month. | |
$500 - $50,000. | 8.14% - 18.00% . | 660. | Does not disclose. | |
$250 - $50,000. | 8.99% - 18.00% . | Does not disclose. | Does not disclose. | |
$2,000 - $50,000. | 8.99% - 35.99% . | 560. | None. | |
$1,000 - $50,000. | 11.69% - 35.99% . | 580. | None. | |
$1,000 - $50,000. | 7.99% - 35.99% . | 580. | None. | |
$1,000 - $50,000. | 6.70% - 35.99% . | None. | $12,000 per year. |
Qualifying for a hardship loan
How to get a hardship loan
- Review your credit. Read your credit report to see what a lender will see when you apply. Most lenders like to see a history of on-time payments to other creditors. Pull your credit reports for free on NerdWallet or at AnnualCreditReport.com.
- Calculate your monthly payment. Lenders usually require borrowers to have enough income to cover monthly expenses plus the loan payment. Use a personal loan calculator to see your estimated monthly loan payments based on the loan amount, your desired loan term and the rate you expect to qualify for.
- Pre-qualify with multiple lenders. Most lenders let you check your potential rate, term and loan amount by pre-qualifying online. The process typically takes a few minutes and only requires a soft credit pull, so you can pre-qualify with multiple lenders to find the best offer.
- Prepare your documentation. Some lenders require a form of income verification, like a W-2 or paystubs, as well as an ID and Social Security number. If you plan to include other forms of income on your application, like alimony, child support, a partner’s income or Social Security payments, find documents that can prove you’re receiving those funds. Get these ready ahead of time to speed up the application process.
- Submit the application and get funded. Some lenders say they can make an approval decision within minutes, while others take a day or two. If you’re approved, expect to receive the funds within a few days. Once you have the funds, make a plan to account for the payments in your monthly budget.
Alternatives to personal loans during financial hardship
401(k) hardship withdrawals
Pros and cons of 401(k) hardship withdrawals
- Can provide ready cash without incurring new debt.
- Withdrawing from your 401(k) won’t impact your credit rating.
- You don’t need to pay back the cash withdrawn from the account.
- Cash received will be taxed as ordinary income on your tax returns for the year.
- You may have to pay a 10% tax penalty if you withdraw the money before age 59½ unless you’ve lost your job and are 55 or over.
- This option leaves you with less in retirement savings and cuts into your nest egg’s growth potential.
How to get a 401(k) hardship withdrawal
Deferment or forbearance on existing loans
Pros and cons of loan deferment or forbearance
- Under agreed upon terms, you may be able to skip payments for a period of time with no impact on your credit score, depending on lender and loan type.
- Can help with a temporary and solvable financial hardship, such as a job loss, rather than more general trouble making ends meet.
- Allows you to meet hardship needs without incurring more debt.
- Interest may continue to accrue on your debt during the non-payment period.
- The lender may require you to repay the past-due balance in a lump sum or add it to your existing monthly payments.
- Deferring a loan payment now may inhibit your ability to request a deferred payment in the future.
How to get a loan deferment or forbearance
Friend and family loans
Pros and cons of friend and family loans
- The loan may have little or no interest and may be larger than what you could qualify for through a traditional lender.
- A loan from a friend or family member won’t adversely impact your credit score — such as a hard pull on your credit — as other loans or lines of credit will.
- Things that could disqualify you from a traditional loan — loss of income, poor credit — may not prevent you from borrowing a family loan.
- You may not be in trouble with creditors if you can’t repay your loan, but nonpayment could cost your personal relationship.
- There may be tax implications if the loan exceeds $18,000.
- Making scheduled loan payments to your family member or friend won’t help build your credit score.
How to get a friend or family loan
Home equity loans and lines of credit
Pros and cons of home equity loans and lines of credit
- Home equity loans and HELOCs can be used for any purpose, including medical expenses, tuition or debt consolidation.
- Interest rates are typically lower than those on credit cards or unsecured personal loans.
- The interest may be tax-deductible if you use the funds for home repairs.
- You risk losing your home if you can’t repay the loan or HELOC.
- Typically, you’ll need a credit score of 620 or higher to be considered for a home equity loan or a HELOC.
- Repayment terms on these financing options can stretch decades. If your home’s value drops during that time, you could owe more than it’s worth.
How to get home equity loans and lines of credit
Payday alternative loans
Pros and cons of payday alternative loans
- Low rates and long repayment terms keep monthly payments and interest costs low.
- PALs are easier to qualify for than other traditional loans.
- Loan amounts can be as high as $1,000, while payday loans are typically $500 or less.
- Missed payments may impact your credit score.
- You must be a member of a credit union that offers PALs.
How to get a payday alternative loan
Buy now, pay later
Pros and cons of buy now, pay later loans
- Split up the cost of big-ticket items, such as appliances.
- No hard credit pull to determine loan eligibility.
- Plans often charge zero interest.
- Longer-term plans may charge interest up to 36%.
- May increase the likelihood of spending beyond your means.
How to get a buy now, pay later loan
Cash advance apps
Pros and cons of cash advance apps
- Loans are provided without a credit check, so a low score won’t hurt your chances of qualifying.
- Funds are provided within one to three business days.
- Users may form a habit of borrowing for everyday necessities, creating a constant cycle of debt.
- Many providers will charge fees for faster funding.
- Repayments are automatically deducted from users' accounts, which may lead to overdrafts if there aren’t enough funds.
How to borrow from a cash advance app
Credit card cash advance
Pros and cons of credit card cash advances
- You can borrow cash instantly.
- Withdrawals are easy because you can typically use any ATM to withdraw your cash advance.
- The interest rate on cash advances is often higher than the rate charged on purchases.
- Cash advances count toward your total credit card usage, which impacts your credit rating.
- Interest begins accruing on the day of the withdrawal unlike many regular credit card purchases, which often have a 21-day grace period.
How to get a credit card cash advance
Other hardship assistance
Hardship financing to avoid
Article sources
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- 19. SolarReviews.com. Homes with Solar Sell for 6.8% More [2024 Zillow Data Study]. Accessed Dec 10, 2024.
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