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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Updated · 9 min read
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Dealing with a job loss, an expensive medical bill or another financial hardship can be challenging if you’re already strapped for cash. Many people don’t have extra money they can tap in these situations.
Fewer than half of Americans (46%) have at least $2,000 in emergency savings, according to a NerdWallet survey conducted online by The Harris Poll in September.
A hardship loan could help if you need to borrow money to meet your financial obligations. Here are hardship loan options, plus alternatives to consider.
What is a hardship loan?
A hardship loan is a personal loan that provides funds to help you get by during a difficult time. Your lender may not call it a hardship loan, specifically, but it is borrowed money that can help cover costs when you’re experiencing financial hardship.
Hardship loans can be used to cover a wide variety of financial needs, like home or car repairs, medical or dental expenses, funeral costs, emergency vet visits or monthly bills during a period of unemployment.
Loan amounts generally range from $1,000 to $100,000 with annual percentage rates (APRs) from about 7% to 36%. Repayment terms usually range from two to seven years.
Some lenders charge an origination fee, which is factored into the APR and typically ranges from 1% to 10% of the loan amount. Lenders often deduct this fee upfront, reducing the amount of money you receive.
Lenders often fund loans in about one or two business days, though some offer same-day funding.
5 personal loans for financial hardship
The following five lenders offer personal loans to a wide variety of applicants, including those with bad credit or thin credit histories.
1. Avant
on NerdWallet's secure website
Avant is an online lending platform that offers small to mid-sized personal loans. This lender only requires borrowers to have a monthly income of $1,200.
- APR range: 9.95%-35.99%.
- Loan amounts: $2,000-$35,000.
- Minimum credit score: 550.
» MORE: Avant personal loan review
2. Prosper
on NerdWallet's secure website
Prosper is a peer-to-peer lending platform. It qualifies loan applicants based on non-traditional factors, like bank account transactions, in addition to credit scores.
- APR range: 8.99%-35.99%.
- Loan amounts: $2,000-$50,000.
- Minimum credit score: 560.
» MORE: Prosper personal loan review
3. Upgrade
on NerdWallet's secure website
Upgrade is an online lender that offers a wide range of loan amounts and repayment terms. It also provides customers with credit-building tools, like free credit score access and personalized recommendations.
- APR range: 7.99%-35.99%.
- Loan amounts: $1,000-$50,000.
- Minimum credit score: 600.
» MORE: Upgrade personal loan review
4. Universal Credit
on NerdWallet's secure website
Universal Credit is an offshoot of Upgrade, but it serves borrowers with lower credit scores.
- APR range: 11.69%-35.99%.
- Loan amounts: $1,000-$50,000.
- Minimum credit score: 560.
5. Upstart
on NerdWallet's secure website
Upstart uses an AI-based underwriting model to make loan approval decisions. Rather than leaning heavily on credit scores, the lender considers non-traditional factors, such as educational background and work experience.
- APR range: 6.7%-35.99%.
- Loan amounts: $1,000-$75,000.
- Minimum credit score: None.
» MORE: Upstart personal loan review
🤓 Nerdy Tip
Borrowers with low or no credit scores may qualify for no-credit-check loans or payday loans. But these loans may have triple-digit interest rates and can lead to a cycle of debt. Only consider these options after you’ve exhausted other ways to borrow. Qualifying for hardship loans
Your credit score and income are often major factors on a personal loan application. However, some lenders look beyond that information to review an applicant’s whole financial picture.
Qualifying with a bad credit score
Applicants with low credit scores may be more likely to qualify for a loan from an online lender or credit union. Banks tend to have higher credit score requirements.
Qualifying with no income
It may be difficult to qualify for a loan if you’ve lost your job and have no income. However, you can include income outside of employment on a loan application.
Many lenders consider income from Social Security payments, disability benefits, child support, alimony or other sources.
Some lenders also offer low-income loans.
How to increase your loan approval odds
If your credit or income is low, you may increase your odds of qualifying for a personal loan by opting for a secured, co-signed or joint loan.
Lenders usually have less strict borrowing requirements for secured personal loans, because they can take your collateral — typically a vehicle or savings account — if you stop making loan payments.
With co-signed or joint loans, the lender can require your co-signer or co-borrower to make loan payments if you fail to do so. Lenders’ borrowing requirements tend to be less strict for these types of loans as well.
How to get a hardship loan
Here are the steps to apply for a 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 your expected rate.
- 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, which doesn’t affect your credit. Pre-qualify with multiple lenders to compare offers and find the best one.
- Prepare your documentation. Some lenders may require documents to verify your income, like a W-2 or paystubs, as well as an ID and Social Security number. 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
Taking out a personal loan when your finances are already stressed may not be the best option. Even if you urgently need funds, taking the time to compare loan options could save you money in the long term.
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.
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. 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.
Pros and cons of 401(k) hardship withdrawals
Pros
- You can get cash without incurring new debt.
- Withdrawing from your 401(k) won’t impact your credit.
- You don’t need to pay back the cash withdrawn from the account.
Cons
- 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 qualify for an IRS exemption.
- 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
Contact your plan administrator to see if your situation qualifies for a hardship withdrawal. If it does, your plan administrator can walk you through how to withdraw funds from your 401(k) account.
🤓 Nerdy Tip
Another option may be taking a loan from your 401(k). These loans may allow you to borrow up to half of your 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 way to get quick relief from financial hardship is to request a temporary reprieve from monthly payments on existing debt, such as student loans, mortgages, car loans or personal loans.
Whether you qualify for loan deferment or forbearance often depends on the type of loan and the loan provider.
Pros and cons of loan deferment or forbearance
Pros
- 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.
- It lessens your financial strain without incurring more debt.
Cons
- 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. Alternatively, your lender could add the extra payments to the end of your loan, extending the time it takes to repay the debt.
- 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
Contact your provider and find out what options are available based on your needs. Notify your lender about your situation as early as possible, before you miss a payment. 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 be uncomfortable, 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 probably won’t consider your credit score in the same way a bank or online lender would.
However, 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.
Pros and cons of friend and family loans
Pros
- The loan may have little or no interest and may be larger than what you could qualify for through a traditional lender.
- There are no hard credit pulls or other adverse impacts to your credit score.
- Factors that could disqualify you from a traditional loan — such as income loss or poor credit — may not prevent you from borrowing from family.
Cons
- Nonpayment could negatively affect your personal relationship.
- There could be tax implications for the lender if they don’t charge interest on a loan over $10,000.
- 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
Be upfront and honest with the friend or family member about how much you need and why you need it. Give the lender time to consider the request, and be ready to answer questions about your ability to repay the loan.
Make 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, or the value of the home minus what you owe.
A home equity loan comes in a lump sum with a fixed interest rate. A home equity line of credit, or HELOC, is an open credit line that you use as needed and comes with a variable interest rate.
You may qualify to borrow 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 the lender can take your home if you don’t repay the borrowed funds.
Pros and cons of home equity loans and lines of credit
Pros
- Home equity loans and HELOCs can be used for any purpose.
- 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 or renovations.
Cons
- You risk losing your home if you can’t repay the loan or HELOC.
- You may need a good credit score to qualify.
- 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
You need to have enough equity in your home plus a qualifying credit score and debt-to-income ratio. A lender also requires employment and income verification.
Expect to pay an appraisal fee and closing costs before you borrow.
Payday alternative loans
Payday alternative loans, or PALs, are available to members of some credit unions. These are short-term, small-dollar loans — typically up to $2,000.
PALs are a far more affordable option than payday loans, which have short terms and high fees that often trap borrowers in a cycle of debt. PALs have a maximum APR of 28%, while payday loans can approach 400% APR or more. Repayment terms for PALs may be as long as 12 months, whereas payday loans often require full loan repayment in two to four weeks.
Pros and cons of payday alternative loans
Pros
- Low rates and longer repayment terms keep monthly payments and interest costs low.
- PALs can be easier to qualify for than other traditional loans.
- Loan amounts can be as high as $2,000, while payday loans are typically $500 or less.
Cons
- 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
You have to be a credit union member to qualify. 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.
Cash advance apps
Cash advance apps provide small loans — typically up to $500 — with no credit check. They basically provide you with a portion of your upcoming paycheck early, using your bank transaction history to determine how much money to advance.
These apps work similarly to payday loans in that you repay the advance, plus any tips and fees, on your next payday. But cash advance apps may charge lower fees.
Pros and cons of cash advance apps
Pros
- There are no credit checks, so a low score won’t hurt your chances of qualifying.
- Funds can be sent within a couple days.
Cons
- Users may form a habit of borrowing for everyday necessities, creating a constant cycle of debt.
- Many providers 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
Borrowers sync their bank account to a cash advance app, which decides how much to advance based on the user’s bank transaction history.
Some apps market themselves as no-interest advances, but they may charge a subscription fee or a fast funding fee. These apps may request an optional tip.
Other hardship assistance
Government assistance for people facing financial hardship: If eligible, you could benefit from the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) or other government programs that help people struggling to cover their basic needs.
Help from nonprofit organizations: Nonprofits, charities and religious organizations in your area may have programs that can help you get food, clothing, transportation for job interviews and more. Contact 211 for connection to local resources.
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: Learn about the different types of debt relief and their consequences.
Frequently Asked Questions
Can you get a hardship loan if you’re unemployed?
Many lenders require loan applicants to show proof of income, but that income doesn’t have to come from traditional, full-time employment. Several lenders accept wages from side gigs, disability benefits, retirement income, Social Security payments, child support, alimony and even a spouse’s or partner’s income.
How fast can you get a hardship loan?
If your loan application is approved, you can typically expect your lender to fund the loan within a few days of you signing the required documents. Some lenders provide same-day or next-day funding.
How long do you have to repay a hardship loan?
Most personal loans have repayment periods ranging from two to seven years. Your specific repayment term will be disclosed in the loan documents you’ll sign before receiving the money.
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