Hardship loans are financial products designed specifically to assist individuals facing challenging circumstances.
These loans can offer vital financial assistance to people and businesses facing difficult circumstances.
This article explores everything you need to know about them, including the top 5 lenders, the application process, pitfalls to avoid, and more.
The Best Hardship Loans
Best for small business loans
Camino Financial offers a reliable and efficient solution for entrepreneurs seeking financial help for their businesses.
With a streamlined application process, fixed interest rates
, and no need for collateral, qualified applicants can expect to receive their loans within 10-12 days.
Our commitment to inclusivity sets us apart, catering to a wide range of credit scores, including individuals with no prior credit history.
We specialize in business loans
, ensuring the borrowed funds are solely to expand and improve one's business ventures.
Apply For A Business Loan!
- Loan amounts: $5,100 to $25,000
- Interest rates: Depending on your credit score
- Min credit score: 580 (we also accept applicants with no existing credit history)
- Origination fee: 6.99%
- Repayment terms: 24 months
Upstart offers a personal loan that you can use during hard times. Their loans might be an option for those facing temporary financial struggles.
- Amounts: 1,000 to $50,000
- Rates: 4.60% to 35.99% APR
- Min credit score: 600
- Origination fee: 0% to 12%
- Terms: 3 to 5 years
You can use Avant loans for a variety of reasons, including hardships. That said, they do not allow co-signers and co-applicants.
- Amounts: $2,000 to $35,000
- Rates: 9.95% to 35.95% APR
- Min credit score: 580
- Origination fee: 4.75%
- Terms: 12 to 60 months
Upgrade is great for people with all types of credit scores. You can receive your funds within 1 day of approval. It offers a pre-qualification option to make the application process more manageable.
- Amounts: $1,000 to $50,000
- Rates: 8.49% to 35.99% APR
- Min credit score: 560
- Origination fee: 1.85% to 9.99%
- Terms: 3 to 5 years
LendingPoint offers a pre-qualification option, and you can receive next-day funding. They have no prepayment or late payment penalties. Unfortunately, they don't allow co-signers or co-borrowers
- Amounts: $2,000 to $36,500
- Rates: 7.99% to 35.99% APR
- Min credit score: 600
- Origination fee: 0% to 8%
- Terms: 24 to 72 months
How To Compare Lenders And Choose The Best Loan
You must consider the following factors:
- Interest Rates. It's essential to understand how much you will pay in interest and for how long. It's better to compare APRs because they not only include interest rates but other fees.
- Loan Fees. Loan Fees include various charges like origination or application fees, affecting the overall cost of the loan. Comparing these fees across different lenders helps to understand the true cost of borrowing.
- Lender's Reputation. There are many scams and predatory lenders out there; you can ensure you're working with a real lender by checking their reviews.
- Customer Support. You want to ensure that the company you are dealing with can help if something goes wrong or you have any questions. Read reviews from past customers.
- Collateral. Collateral refers to assets you offer as security for a loan. Consider whether you want to provide collateral, as the lender could seize it if you default.
- Loan Amounts. Research different lenders to identify how much they'll be able to lend you and if it fits your needs.
- Eligibility. Different lenders have different requirements and qualifications, so you want to ensure you don't waste time applying for loans you aren't eligible for.
- Application Procedure. Understanding the process beforehand will help you decide whether to apply with that lender. You might have to provide sensitive information about your current financial situation.
- Speed. The sooner your loan gets funded, the sooner you can make ends meet again and start building up your credit again.
Ask the lender if they will report the payments to the major credit bureaus; if so, this can help you to improve your credit score or affect it if you don’t make payments on time.
HOW TO PAY OFF DEBT QUICKLY
How To Get A Hardship Loan
Meet The Lender's Requirements
Each lender you look at will have a different set of qualification requirements. That said, the most common include:
- Proof of Hardship. Few lenders might ask for documentation showing the reason for financial hardship. Examples are medical expenses, unemployment evidence, or proof of reduced income.
- Credit Score. While some lenders may be more flexible, you still need a decent credit score.
- Proof of Income. Verification of employment or stable income source (like business profits) to ensure repayment capability.
- Bank Account Information. You need a valid bank account for loan disbursement and repayment.
- Legal Requirements. You must be of legal age and a resident or citizen of the UA.
- Debt-to-Income Ratio. Assessment of your existing debts versus income to determine your ability to repay the loan.
- Collateral. Some loans may require collateral as security, such as property or other valuable assets.
A unsecured loan is a type of loan that is not backed by collateral.
How To Apply For A Hardship Loan
- Check Your Credit Report. This helps give you an idea of what kind of loans you are eligible for and how much you can borrow.
- Assess Your Needs. Before you dive in, calculate how much loan you can afford. Do you know your monthly budget and how a loan might affect it? Online calculators can help with this.
- Compare Offers. Search for banks, online lenders, or other lending institutions. Compare rates, terms, and eligibility criteria.
- Apply. Fill out the application online or in person. You will have to share personal and financial information.
- Get Prequalified. Prequalifying for a loan means the lender will run a credit check on you and verify your information.
- IMPORTANT: Getting prequalified does not guarantee approval.
- Share more information and documentation. During the process, you'll also need to share extra documentation to help the lender assess your creditworthiness.
- Sign the Contract. Once you receive approval, check the terms the lender is offering. If you like them, just sign on the dotted line. Depending on the timeline, you could have your money in as little as a day or 12.
What Is A Hardship Loan?
A hardship loan is a loan for someone who needs it urgently
They are usually for people with no other options, such as those in dire need of money but do not qualify for a conventional loan.
They are great alternatives for those with poor or no credit scores.
How Does A Hardship Loan Work?
These loans might have more favorable terms, reflecting the borrower's challenging financial situation. But they might also have unfavorable terms if the applicant has a bad credit score.
The requirements on these loans are usually much lower than traditional bank rates.
This makes them an attractive alternative for people who need a little help getting back on their feet financially.
Some lenders might also provide features like deferred payments or extended grace periods, recognizing the borrower's temporary financial struggle.
However, it is essential to consider that while they can provide temporary relief, you still need to repay them according to the agreed terms
. Failure to do so can lead to further financial problems, such as penalties or damage to the credit score.
Pros And Cons Of Hardship Financing
- You can use it for an emergency
- It offers fast access to cash
- They have easy-to-meet requirements
- They can have a lot of fees
- They might have high-interests
- Strict eligibility requirements
How You Can Spend A Hardship Loan
A hardship loan can help you navigate unexpected financial challenges, and as such, the spending of this loan is typically oriented toward essential needs
. Here are some examples:
- Medical Expenses. Covering sudden health-related costs.
- Housing Costs. Including rent, mortgage payments, or essential repairs.
- Utilities. Paying essential utility bills like electricity and water.
- Auto Repairs. Funding necessary vehicle repairs.
- Groceries and Essential Living Expenses. Buying food and other essential household items.
- Debt Payments. Making necessary payments on other loans or credit cards.
- Educational Costs. Supporting basic education-related expenses.
- Job-Related Expenses. Including travel to interviews or professional attire for job searching.
- Business Expenses. If you run a small business and face challenges like a drop in revenue or unexpected costs, one of these loans may cover essential business expenses to keep the operation running.
Types Of Financial Hardship Loans
The market offers many types of hardship loans, each serving a specific purpose, allowing borrowers to access varying amounts of money, and offering distinct repayment terms.
Some of the most frequent are:
- Personal loan. Hardship personal loans generally offer lower interest. Both unsecured and secured personal loans are available for borrowers to consider. These loans aim to assist individuals in covering unforeseen expenses, such as:
- medical bills
- car repairs
- sudden job loss
- Business loan. These loans help businesses meet unexpected expenses, such as payroll, rent, or inventory. Business hardship loans typically have longer repayment terms than personal loans; you can find types such as secured and unsecured loans.
- Debt consolidation loan. Consolidate multiple debts into one loan with a lower interest rate. Debt consolidation loans can help borrowers save money on interest and make it easier to manage their finances.
- Medical loan. Pay for medical expenses like hospital bills, doctor's visits, or prescription medication. Medical hardship loans typically have lower rates than other types of loans.
- Home improvement loan. Finance home improvement projects like a kitchen remodel, bathroom renovations, or new windows. Home improvement loans typically have longer repayment terms than other types of loans.
Average Amounts, Terms, And Conditions Of Hardship Loans
The terms and conditions can vary depending on the lender, but you should keep some general things in mind if you consider taking out this type of loan
- Loan amount. The amount you can borrow will vary depending on the lender and your circumstances. However, most of these loans are relatively small, ranging from $100 to $30,000.
- Interest rate. Lenders typically set a higher interest rate for financial hardship loans due to the increased risk associated with them compared to traditional loans. You can find rates between 6% and 99%.
- Repayment period. The repayment period is typically shorter than the repayment period for a traditional loan. Usually, you can find terms of 2 to 6 years.
- Early repayment penalties. Some lenders may charge an early repayment penalty if you repay your loan early.
Types Of Hardship Loans You Should Avoid
- No-credit-check loans. No-credit-check loans often come with exorbitant interest rates and fees, which can trap you in a cycle of debt. It's essential to understand the terms of these loans before you sign on the dotted line.
- Paycheck Advances. Paycheck advances are short-term loans that cover expenses until the next paycheck. A company's bank or credit union often provides them, but you can also get one through a third-party lender. The interests tend to be higher than personal loans.
- Payday alternative loans. Payday loans are small, short-term loans that must be repaid by your next payday. While they might seem like a quick fix for immediate cash needs, they typically come with extremely high rates and fees.
Why These Alternatives Are A Bad Idea
- Their interest rates are high. These alternatives come with rates that can quickly escalate. You might not be able to handle those extra costs.
- They tend to have many fees. Unseen fees hidden in the contract can catch you off guard.
- They have inflexible repayment terms. Often, the terms can be inflexible or not suited to your situation. These terms might make it even harder for you to manage your finances.
- Your financial situation could get worse. Instead of alleviating your problems, some loans might sink you further into debt.
- They can affect your credit score. Taking on a loan that's difficult to repay can severely affect your credit score. This would negatively affect your future borrowing ability.
Be Careful With Loan Scams
Scam lenders are those who take advantage of borrowers and make borrowing money a nightmare. They charge exorbitant fees or offer loans that have high monthly payments.
The most common loan scam is that they contact people who are desperate for cash and unable to get a loan elsewhere.
They offer them a loan with an unbelievably low-interest rate.
They then ask for personal information like bank account numbers, credit card details, and ID card numbers.
The scammer takes the money from the account and disappears without the intention of repaying it.
Best Tips For Avoiding Scams
To differentiate between bad and good lenders, you should check if the financial institution:
- Have a good reputation in the industry
- Are you registered with any regulatory bodies
- Charge high-interest rates
- Offer loans with low credit limits
- Have charges such as loan origination fees
- Offer loans that are too long
- Seem to be making significant profits
Alternatives To Hardship Loans For Emergencies
Sometimes a hardship loan is not an option at all. Luckily, there are other options when this happens, such as:
- Deferment. It allows you to postpone making payments on your loan temporarily. Borrowers can allocate their limited funds toward other essential expenses by deferring payments.
- Forbearance. It allows you to reduce your monthly payment amount temporarily.
- Government Hardship Loans. Some government agencies and non-profit organizations can offer the financial help you need. Some examples are:
- Home Affordable Modification Program (HAMP)
- Home Affordable Refinance Program (HARP)
- 401(k) Hardship Withdrawals. It is a way to withdraw money from your 401(k) account for a specific reason. You can only take out the amount you contributed to the account, but there are no taxes or penalties.
- Line of Credit. A line of credit is a loan agreement between you and a financial institution allowing you to borrow up to a certain amount rather than taking out a single loan for the entire amount.
- Home Equity Loans. A home equity loan is a type of second mortgage that allows the borrower to use their home as collateral for a new loan. This means that if you default on the loan, the lender can foreclose on your home.
- Bank Hardship Programs. They are a way to give customers a chance to work with the bank on their finances. Some of the most common types of bank hardship programs include:
- Emergency loans
- Deferment loans
- Debt consolidation loans
- Home equity lines of credit (HELOC)
- Friend and Family Loans. This is a viable option, usually with more flexible terms. Just ensure that everything is in writing to avoid any misunderstandings.
- MCAs. Merchant Cash Advances (MCAs) are advances on future credit card sales. But be careful; the terms might not always be in your favor.
- Ask for Bill Extensions or Payment Plans. Contact your service providers and negotiate a bill extension or a new payment plan. Surprising, isn't it? Many companies will work with you during tough times. Have you tried this approach yet?
Many non-profit programs offer financial relief to people who are struggling financially. Here are a few examples:
- United Way. The United Way is a non-profit organization providing financial help to needy people. They offer a variety of programs, including food assistance, housing assistance, and utility assistance.
- Catholic Charities USA. Catholic Charities USA is a non-profit organization providing social services to needy people. Their programs include financial assistance, food assistance, and housing assistance.
- The Salvation Army. The Salvation Army is a non-profit organization providing social services to needy people. The organization offers a variety of programs, including financial assistance, food assistance, and housing assistance.
When choosing a financial relief option, it is important to consider your specific needs and circumstances.
Other Hardship Assistance Options
- For help meeting basic needs. Community organizations and charities might assist with food and essentials.
- For help with rent or utilities. Local government programs can often provide short-term assistance. Did you know about these resources?
- To pay medical bills. Negotiate with healthcare providers or look for medical aid programs.
- To clear an unsecured debt. Debt consolidation or settlement might be your ticket out.
- To pause student loan payments. Contact your lender for deferment or forbearance options.
The Best Loan For Your Business Needs
Hardship loans serve as a vital financial lifeline for individuals grappling with unexpected financial challenges.
For entrepreneurs in need of urgent capital, business loans stand out as a crucial financial product.
They support the unique needs of a business, provide immediate financial support, and fuel growth, innovation, and stability.
If you're a small business owner looking for a tailored solution, Camino Financial might be the right fit for you.
We understand the unique challenges and opportunities that you face. That's why we have minimal requirements.
Apply For A Business Loan!
What qualifies as financial hardship?
It refers to a situation where a person cannot meet essential financial obligations due to unforeseen circumstances like job loss, medical emergencies, or natural disasters.
What are some examples of financial hardship?
Some examples of what qualifies as a hardship are:
- A sudden, unexpected illness or injury that requires immediate medical attention or treatment
- A job loss or reduction in hours without warning
- A death in the family
- An eviction notice due to unpaid rent or mortgage payments
- Major natural disasters
How fast can I get an emergency loan?
There are many ways to get an emergency loan. The most common way is to go through a lending institution like a bank or credit union.
You can also get one from family or friends, but you need to be careful because they will want repayment with interest.
Are hardship recovery loans a good idea?
Loans for financial hardship are products for when you are in a situation where you need to borrow money, and you have no other alternatives.
They are also recommended if you have a good credit score and can repay the loan without any difficulties.
Are hardship loans safe?
Not all of them are safe, there are some scammers and predatory lenders out there. Some loans have hidden fees that can turn into debt traps if you don't know what you're doing.
So make sure to do your research before taking out a loan and make sure it's the right one for your situation.
Will a hardship loan have an impact on your credit history?
Hardship loans are often seen as a last resort when people cannot get any other type of loan.
This can impact your credit history, but it will depend on how you repay the loan and how much money you borrow.
What if I can't qualify for a hardship loan?
Look into other alternatives, like getting a loan from friends and family or a 401k loan.
How can I get a loan with bad credit?
You just need to find the right lender.
The easiest product to get with bad credit is a secured personal loan because the use of collateral helps mitigate risk. If you don't want to risk your assets, though, you can also get an unsecured personal loan, but you'll find higher interest rates.
How to get approved for a hardship loan?
You will typically need to provide proof of your income and your expenses. You may also need to provide proof of your outstanding debts.
And finally, you will need to provide proof of the reason why you are unable to pay your bills. This could include a letter from your employer stating that they have you laid off.
What happens when you claim financial hardship?
The law requires your creditor to stop all collection activity when you claim financial hardship.
This includes any phone calls, letters, or visits from the creditor or anyone working on their behalf.
The law also requires the creditor to review your account and see if you qualify for a hardship program.
If the lender approves your hardship loan application, the creditor may be able to reduce your monthly payments, forgive some of your debt, or delay your payments.
Can you get a hardship loan if you're unemployed?
It's possible to get loans for financial hardship if you're unemployed, but the terms of the loan may be more difficult to meet if you're unable to work.