Hardship Loans: How to Borrow Money During a Financial Setback
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A financial hardship can add stress to an already difficult situation, like when your vehicle breaks down, someone in your household loses their job or a family member requires expensive medical care.
Though there are safe borrowing options for tough times, taking on debt may add to your burden. That means it’s important to compare all your options before you borrow.
Here are hardship loan options, plus alternatives to borrowing.
6 hardship loans for bad credit
Unsecured personal loans can help cover expenses related to hardship. These loans are offered by credit unions and online lenders, many of which accept borrowers with low credit scores or thin credit histories. If you’re borrowing for an emergency, a personal loan can be funded within a couple of days.
Some lenders offer secured personal loans, which require collateral and can help you qualify more easily or get a better rate.
» COMPARE: See your bad-credit loan options
Amount: $1,000 to $100,000.
What it’s for: If your credit score is above 550, a personal loan may help with urgent home repairs or medical emergencies.
Requirements: Your credit score and income are major factors on a personal loan application; however, some bad-credit lenders and credit unions look beyond that information and review applicants’ whole financial picture.
Costs: APRs on personal loans range from about 6% to 36%. Some lenders charge an origination fee, which is calculated in the APR and may reduce the loan amount you receive.
These six lenders provide loans to bad- and thin-credit borrowers.
Min. credit score
Min. income requirement
$1,000 - $50,000.
10.49% - 29.49%.
Does not disclose.
$2,000 - $35,000.
9.95% - 35.95%.
$1,200 net income per month.
$2,000 - $50,000.
6.99% - 35.99%.
More than $0.
$1,000 - $50,000.
11.69% - 35.99%.
$1,000 - $50,000.
8.49% - 35.99%.
$1,000 - $50,000.
6.50% - 35.99%.
$12,000 per year.
What is a hardship loan?
A hardship loan provides funds that can help you get by during a difficult financial time. This loan can help bridge an income gap or cover an emergency. Borrowers are typically approved within a day or two and receive funds in less than a week.
Even if you urgently need funds, taking the time to look for lower-cost options could save you money in the long-term.
How to get a hardship loan
It may be difficult to qualify for a loan during financial hardship, especially in the case of a job loss. Some lenders offer low-income loans, but you’re unlikely to qualify with no income.
If your hardship is more along the lines of reduced income, lowered credit score or a financial emergency, here are the steps to apply for a loan.
Review your credit. Review 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. A spotty credit history could mean your application will be denied, or that you’ll get a higher rate or lower loan amount. Pull your credit reports for free on NerdWallet or at AnnualCreditReport.com to get an idea of the offer you can expect.
See how much loan you can afford. Lenders usually require borrowers to have enough income to cover monthly expenses plus the loan payment. Use a personal loan calculator to see your monthly loan payments based on the loan amount and term that you want 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. Getting these ready ahead of time will hasten 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 sure to account for the payments in your monthly budget.
Other hardship loan options
Friend and family loans
Borrowing money from a friend or family member may be the cheapest option, especially if the person who lends to you doesn’t charge interest. A friend or relative also won’t consider your credit score like a bank or online lender would. Asking someone you’re close with to lend you money may bruise your ego, but it can also be the fastest and simplest option.
To set expectations, draw up a contract detailing the loan amount and terms, including when and how often payments will be made and how much they'll be.
Amount: You and the person you borrow from determine the loan amount, but note that there may be tax implications if the loan exceeds $17,000.
What it’s for: This option can be helpful if you’ve recently lost your job or main source of income, which may disqualify you from most traditional loan options. You can use this money for a car repair or to get back on track after a difficult time. You and the lender can decide whether to restrict how the funds are used.
Requirements: Typically no qualification requirements.
Costs: Your friend or family member can decide whether to charge interest. Beyond hard costs, a friend or family loan could cost you the relationship if something goes wrong, so tread carefully.
Payday alternative loans
Payday alternative loans, or PALs, are small-dollar loans available to members of some credit unions. If you have a low credit score and are a member of a credit union that offers PALs, it’s one of your cheapest borrowing options. You typically have between one and 12 months to repay this loan.
Amount: $200 to $2,000.
What it’s for: These are small, short-term loans that can help you pay for small emergencies or unexpected expenses.
Requirements: You may have to be a credit union member for at least a month to qualify, but some only require that you become a member. Your income and ability to repay the loan are key factors in determining whether you qualify.
Costs: PALs can have annual percentage rates of up to 28%. Some credit unions require a one-time membership fee.
401(k) hardship withdrawals
If you’ve been contributing to a 401(k), you may qualify for a hardship withdrawal. Check your plan to determine if you qualify and what the specific conditions are.
Amount: This type of withdrawal lets you access money you — and maybe your employer — have contributed to the fund, but probably not any gains the money has made while it has been invested.
What it’s for: Generally, expenses such as medical bills, college tuition, money to avoid eviction, funeral expenses and some home repairs qualify for hardship withdrawal.
Requirements: Your plan’s administrator usually decides whether you qualify, and you may have to explain why you can’t get the money elsewhere.
Costs: If you’ve lost your job and are under age 55, you could face tax penalties for withdrawing money from your 401(k). You may still have to pay a 10% tax penalty if you withdraw the money before age 59 1/2. This option also leaves you with less in savings for retirement.
Home equity loans and lines of credit
With a home equity loan or line of credit, you borrow against the equity your home has gained. A home equity loan comes in a lump sum, while a HELOC is an open credit line you use as needed.
Tapping your equity to cover a hardship can be a risky option because you use your home as collateral. That means if you don’t repay the borrowed funds, you could lose the house. Also, if your home’s value drops, you could owe more than what it’s worth.
Amount: Up to about 85% of your home’s value.
What it’s for: Urgent home repairs are a good use of home equity financing, as long as you're comfortable using your home as collateral.
Requirements: You usually need a home value that’s at least 15% more than what you owe, a debt-to-income ratio of less than about 40% and a 620 or higher credit score. A lender will also require employment and income verification.
Costs: You may have to pay appraisal and closing costs before you borrow. Home equity loans and HELOC rates both start in the single digits, but home equity loan rates are fixed while HELOC rates are usually variable.
Cash advance apps
Cash advance apps provide small loans of a few hundred dollars to borrowers with no credit check. Users typically connect a bank account and the app decides how much to advance you based on your bank account transaction history.
These apps work similarly to payday loans — you repay the advance, plus any tips and fees, on your next payday — but they may charge lower fees.
Amount: $50 - $500.
What it’s for: Small, one-time emergencies when you know you can repay the funds on your next payday without causing another financial setback.
Requirements: Apps require you have a bank account, sometimes with 30 days or more of active transaction history. Usually, the more bank account history a user has showing things like a consistently positive balance and regular direct deposits, the more easily they qualify.
Costs: Some apps market themselves as no-interest advances, but they can charge a subscription fee up to about $10, a fast funding fee from about $1 to $15 and they may request an optional tip that’s generally capped at 15% to 25% of the advance amount.
Buy now, pay later
“Buy now, pay later” apps like Affirm and Afterpay can lessen the stress of a large purchase by splitting it up into smaller installments for zero interest. The most common offering is the “pay-in-four” model, which requires you to pay for 25% of the purchase at checkout, and then make three more, equal bi-weekly installments to pay it off.
Amount: The cost of your purchase.
What it’s for: Large, one-time purchases when the payments fit into your budget.
Requirements: Some BNPL apps do a soft credit pull, but most base approval decisions on the available funds on your debit card and your history of borrowing and repaying with the app.
Costs: BNPL is typically a no-cost option, but some apps charge a small late fee, usually up to $10. This option can also end up costing you more if splitting up your purchase into smaller payments entices you to buy more than you had planned to.
Other hardship assistance
For help meeting basic needs: Seek assistance from local nonprofits, charities and religious organizations. They can help you get food, clothing and access to transportation for job interviews.
For help with rent or utilities: Contact your utility company, landlord or mortgage issuer for help deferring a payment. If you need long-term help, consider seeking other housing or contacting a housing counselor.
To pay medical bills: Learn about ways to cover medical costs, including payment plans.
To clear unsecured debt: Debt relief can help if your debt has become overwhelming. Learn about the different types of debt relief and their consequences.
To pause student loan payments: If you meet certain criteria, you may be eligible for student loan deferment or forbearance.
Hardship financing to avoid
No-credit-check loans: A lender may offer a no-credit-check loan for borrowers with low or no credit scores, but beware of this option. These lenders may not review your ability to repay the loan and will charge triple-digit interest rates to account for the risk of you not paying.
Payday loans: Payday lenders may attract consumers in hardship because they have few qualification requirements, and some lend to you regardless of your employment status. They often require repayment of the entire loan amount in two weeks, which can lead to a cycle of debt if you're unable to make the payment and have to borrow again.