Hardship Loans: How to Borrow Money During a Financial Setback

A hardship loan can be any funds borrowed during a financial challenge. Compare all options before you borrow.
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Written by Annie Millerbernd
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Co-written by Kevin Voigt

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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 aresafe 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.

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 compare loan options could save you money in the long-term.

7 hardship loans for bad credit

Unsecured personal loans can help cover hardship-related expenses. 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.

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: Annual percentage rates (APR) 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. Origination fees may range from 1% to 10% of the loan amount.

These seven lenders provide loans to bad- and thin-credit borrowers.


Loan amount


Min. credit score

Min. income requirement

NerdWallet rating 
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on Avant's website

$2,000 - $35,000.

9.95% - 35.99%.


$1,200 net income per month.

First Tech Credit Union Personal Loan
NerdWallet rating 
See my rates

on NerdWallet's secure website

$500 - $50,000.

8.99% - 18.00%.


Does not disclose.

Navy Federal Credit Union Personal Loan
NerdWallet rating 
See my rates

on NerdWallet's secure website

$250 - $50,000.

7.49% - 18.00%.

Does not disclose.

Does not disclose.

NerdWallet rating 
See my rates

on NerdWallet's secure website

$2,000 - $50,000.

8.99% - 35.99%.



Universal Credit
NerdWallet rating 
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on Universal Credit's website

$1,000 - $50,000.

11.69% - 35.99%.



NerdWallet rating 
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on Upgrade's website

$1,000 - $50,000.

8.49% - 35.99%.



NerdWallet rating 
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on Upstart's website

$1,000 - $50,000.

7.80% - 35.99%.


$12,000 per year.

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.

  1. 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. 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.

  2. 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 monthly loan payments based on the loan amount and term that you want and the rate you expect to qualify for.

  3. 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.

  4. 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.

  5. 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.

Other hardship loan options

Borrowing when your finances are already stressed may not be the best option, so consider low- and no-cost alternatives before applying for a loan.

401(k) hardship withdrawals

If you’ve been contributing to a 401(k), you may qualify for a hardship withdrawal. This type of withdrawal lets you access money you have contributed to the fund. New IRS rules from 2019 permit (but do not require) that 401(k) plans may also allow hardship distributions on any gains the money has made while it has been invested.

The IRS allows penalty-free hardship distributions if the employee can show “an immediate and heavy financial need,” and the amount taken from the 401(k) is “limited to the amount necessary to satisfy that financial need.”

Generally, expenses such as medical bills, college tuition, money to avoid eviction, funeral expenses and some home repairs qualify for hardship withdrawal. Your plan’s administrator usually decides whether you qualify, and you may have to explain why you can’t get the money elsewhere, such as from a personal loan or the liquidation of other assets.


  • 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.


  • If you’ve lost your job and are under age 55, you could face tax penalties for withdrawing money from your 401(k). 

  • Cash received will be taxed as ordinary income on your tax returns for the year. 

  • You may still have to pay a 10% tax penalty if you withdraw the money before age 59½.

  • After a hardship withdrawal, you may not be able to contribute to your 401(k) for six months. 

  • This option leaves you with less in retirement savings and cuts into your nest egg’s growth potential.

Contact your plan administrator to understand if your situation qualifies for a hardship withdrawal. Although the IRS allows for hardship withdrawal for things like a new home purchase or college tuition payments, it's up to your provider to determine what situations allow for a hardship withdrawal.

🤓Nerdy Tip

Another option may be taking a loan from your 401(k). These loans may allow users to borrow up to half of their retirement account balance or $50,000 — whichever is less — for a maximum of five years. Unlike hardship withdrawals, the amount must be repaid. Like early withdrawals, you’ll miss out on potential growth by reducing your investment amount.

Deferment or forbearance on existing loans

One tactic to help ease an immediate financial hardship is to get a temporary reprieve from monthly payments on existing loans, such as student debt, mortgage, car loan payments or personal loan payments. Whether you qualify for loan deferment or forbearance often depends on the type of loan and the loan provider.

For student loans, if you meet certain criteria, you may be eligible for student loan deferment or forbearance. For homeowners, mortgage forbearance may be arranged with the provider for a specific period of time.

No matter the loan type, the first step is always to contact your provider to discuss your situation and eligibility for any loan repayment relief.


  • 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.

Contact your provider and find out what options are available based on your needs. Because a missed loan payment can have a significant impact on your credit score, it’s important to notify your lender about your situation as early as possible. Be ready to provide documentation of your hardship needs, such as unemployment compensation.

Friend and family loans

Asking a close friend or family member to lend you money may bruise your ego, but it can also be a fast and simple solution.

A loan from a friend or family member may be the least expensive option, especially if the lender doesn’t charge interest. A friend or relative won’t consider your credit score like a bank or online lender would. But it’s important to set clear 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.


  • 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.

Be upfront and honest with the friend or family member about how much you need and why you need it. Don’t ask for an immediate answer, give the lender time to consider the request. Be ready for questions on your ability to repay the loan. Draw up a loan agreement that includes the amount and how the cash will be used, repayment terms and any interest rate. Specify what happens if you fall behind on payments.

Home equity loans and lines of credit

With a home equity loan or line of credit, you borrow against the equity you’ve built. A home equity loan comes in a lump sum, while a HELOC is an open credit line you use as needed.

For home equity loans and HELOCs, you may qualify for loans up to about 85% of your home’s value. 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.


  • 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 improvement purposes.


  • With either choice, you risk losing your home if you can’t repay the loan. 

  • 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.

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 50% and a qualifying credit score. A lender will also require employment and income verification. 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.

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.

These are small, short-term loans — typically $200 to $2,000 — that can help you pay for small emergencies or unexpected expenses. PALs are a far more affordable option than payday loans, whose short-term, high-fee loans often trap borrowers in a cycle of debt. PALs have a maximum APR of 28%, while payday loans can approach almost 400% APR or more. Repayment terms for PALs may be as long as 12 months; payday loans often require full loan repayment in two to four weeks.


  • Low rates and long repayment terms keep monthly payments and interest costs low.

  • PALs are easier to qualify for than other traditional loans.

  • Loan amount can be as high as $2,000, 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.

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. Some credit unions require a one-time membership fee.

Your income and ability to repay the loan are key factors in determining whether you qualify.

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, biweekly installments to pay it off.

These apps are especially helpful for large, one-time purchases when the payments fit into your budget. BNPL is typically a no-cost option, but some apps charge late fees or rescheduled payment fees, ranging up to $15.


  • 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.

You’ll see an option to break up your total purchase and pay a smaller amount during checkout. You’ll fill out a short application on your mobile phone if you’re shopping in store or directly on the checkout screen if you’re shopping online. 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.

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 based on their 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. Loan amounts are typically between $50 to $500.


  • 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.

  • Typically, missed payments aren’t reported to any of the three major credit bureaus.


  • Users may form a habit of borrowing for everyday necessities, creating a constant cycle of debt.

  • Many providers will charge higher fees for faster funding, as much as $20 for a $200 loan repaid in seven days, which is the equivalent of 521% APR.

  • Repayments are automatically deducted from users' accounts, which may lead to overdrafts if there aren’t enough funds.

Apps require you to have a bank account, sometimes with 30 days or more of active transaction history. Some apps market themselves as no-interest advances, but they can charge a subscription fee up to about $15, a fast funding fee from about $1 to $25, and they may request an optional tip up to 25% of the advance amount.

Credit card cash advance

A credit card cash advance allows you to use your credit card to withdraw cash from an ATM or at a bank, rather than to purchase a product or service. The amount depends on your credit card cash advance limit.

Cash advances from credit cards are convenient, as you can get cash advances directly from an ATM if your credit card has a PIN. But that convenience comes at a price: You may be charged a one-time fee of 3% to 5%, and many providers charge a higher APR for cash advances than regular purchases.


  • 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 much 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.

Check with your credit card company to determine your cash withdrawal eligibility and the limits on cash withdrawal amounts (which are often far less than your total credit limit). If your card has a PIN number, you can use it at most ATMs or take it to any bank that offers cash advance through your card’s payment network, such as Visa or Mastercard. 

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.

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.

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