Hardship Loans


Financial emergencies are some of the most stressful situations we experience (and we all experience them).

When you seek a hardship loan, it may be because you are temporarily unable to meet your basic needs. It’s the kind of situation that requires prompt, conscientious help at a cost that won’t lock you into a cycle of debt. This article can be a starting point when looking for a financial hardship loan option that might be right for you.

What is a hardship loan?

A hardship loan is a loan to cover an unexpected shortfall, either because your expenses have increased or your income has decreased. Hardship loans are not like other loans designed to meet an anticipated or expected need (like a car loan or a business expansion loan). A financial hardship loan is for situations where you cannot pay your bills.

You can learn more about some types of hardship loans by checking out these guides we’ve prepared:

  1. Emergency loan guide
  2. Coronavirus hardship loan guide
  3. Unemployment loan guide
  4. Guide to alternatives to payday loans

Then, if you decide you need to apply for a loan, start with our list of the best personal lenders. We’ve checked pricing, qualification criteria, reputation, and other factors to put together a short list of resources that may help you.

What types of hardship loans are available?

Financial hardship loans come in many varieties to meet different needs. Here are some examples.

401(k) hardship withdrawal

In certain circumstances, if you have an immediate and significant financial need, you may be able to borrow from your own 401(k). Your employer must offer this feature. Additionally, the money can only be used for:

  • Certain expenses to purchase and repair a principal residence, or to prevent eviction or foreclosure
  • Certain medical expenses
  • Tuition and fees (up to 12 months)
  • Burial and funeral expenses

payday loan

A payday loan is a type of short-term cash advance. Most are set up to be automatically refunded from your bank account on your next payday. Payday loans are considered “predatory”. This means that the terms of the loan are abusive and unfair to you, the borrower.

The typical payday loan offers quick cash at very high prices (but you might not realize how expensive they are when you take out the loan).

Most payday loan borrowers get trapped in a cycle of debt because it can be very difficult to repay the loan plus all fees by the due date. Even if you repay your loan, it may leave you short of funds for the next month, so you need to take out another loan. According to Pew Charitable Trusts, the average borrower ends up paying $520 in fees to repeatedly borrow $375. It can be hard to stop relying on payday loans once you start the cycle.

You should avoid payday loans as they are very expensive but rarely your only option. Here are two alternatives that may be easy to access:

Box. Check with your local credit union (especially if you’re already a member) to see if they offer a payday loan (PAL) alternative. (See the link to our PAL guide above.) This is a payday advance at a much lower cost than what you’ll pay at a payday lender.

cash advance application. You can also sign up for an app that offers a free cash advance or a very low cost cash advance. Cash advance apps can help you access between $200 and $500 to pay back on your next payday. This type of cash advance is usually interest-free, but may incur fees between $1 and $14.

The catch with these alternatives is that you will need to set up your account in advance, usually 30-60 days before you need the money.

Emergency home repair loan

It costs money to own a home. Along with mortgage, insurance, taxes, and homeowners association (HOA) fees, you will also incur maintenance and repair costs over time. When your water heater decides to go kaput, you may need to find a few thousand dollars to get it replaced. And you have to act fast, because you’re taking cold showers while you wait.

Options for emergency home repairs include:

  1. Home equity loan or home equity line of credit: You will need equity to borrow.
  2. Credit card or credit card cash advance: You will need to have sufficient available credit.
  3. Personal loan: You will need to qualify. We’ve written a guide to help you learn how to get a personal loan.

Loan for medical or veterinary care

Unexpected medical expenses are a major cause of financial hardship. The first step is to contact the health care provider to request a discount on your balance. They may also be willing to work out a payment plan that fits your budget.

If you know you will have future medical expenses, you may want to consider a medical loan or a medical credit card. Often, this type of medical expense loan is free if you are able to make each loan payment on time. Be careful, however. Medical financing usually comes with deferred interest. If you don’t repay the entire balance at the end of the loan term, you will have to pay interest on the entire balance, even the part you repaid.

You can finance pet medical care in the same way. Some credit programs are available just for this purpose.

Other options include using a credit card or getting a personal loan.

Personal loans

A personal loan can be taken out for just about any reason, including financial hardship. This is an installment loan. Your monthly payment and interest rate will be the same for the life of the loan.

To get a personal loan, you will need to meet all the qualifying criteria required by the lender, including their minimum credit score. The interest rate generally depends on your credit score, the loan amount and the term of the loan. Shorter repayment periods often come with a lower interest rate.

It doesn’t matter if you opt for an online lender or your local bank. But shop around for the best interest rate and lowest fees.

If your credit score is not high enough to qualify for the personal loan or to obtain an interest rate that makes the loan affordable, you may be able to improve your options by applying for a secured personal loan. To get a secured loan, you will need collateral. For example, if you have a Certificate of Deposit (CD) account (a special savings account that pays higher interest but restricts access to your money for a period of time), you may be able to borrow from that -this. Other things you can use as collateral for a personal loan include:

  1. Your house
  2. Your car or boat
  3. Jewelry or other valuables
  4. Assurance

Postponement and patience

In some cases, you may be able to manage your financial emergency by working with an existing lender rather than finding a new one.

Mortgage forbearance is sometimes an option, especially if your income has been impacted by the pandemic. With loan forbearance, you benefit from deferred payments, but the interest still accrues. The catch with most mortgage forbearance programs is that when you resume payments, you’ll have to make up all your missed payments (in a payment plan, not a lump sum). This is not a good option for most people. You may be better off finding a hardship loan to help cover the payment, rather than racking up a big bill that will increase your monthly financial obligations.

Call your mortgage officer for details of any relief program or forbearance plan they offer. Plus, depending on your income and loan details, you might even qualify for a loan modification that permanently lowers your monthly payment.

Car loans and personal loans, as a rule, do not offer deferment or forbearance options.

Debt relief

When you’re financially stressed, debt relief options may leap out at you from your TV. It’s very easy to be lured into programs that claim to help you settle your debts and get quick relief.

To cut to the chase, it’s highly unlikely that you’ll be able to settle your debts for pennies on the dollar. And you’ll be torpedoing your credit score for years if it’s not already low.

Typically, you will have to stop paying all your bills and instead send a monthly payment to the debt relief company. Once your bills are sufficiently overdue, the company starts making low offers to your creditors. This process takes years and may or may not be successful. If debts are settled for less than is owed, expect your creditors to report the forgiven amount to the IRS as income, which will increase your tax liability.

Other Ways to Help Bridge a Financial Gap

In addition to looking for emergency money, you can also ask for help. Sometimes a quick phone call can temporarily erase a financial obligation. Contact all the companies you make payments to and ask what kind of financial help they can offer you during your difficulties. Your utility company may temporarily lower your rate. Your cell phone provider may allow you to suspend your service for a month or two. Any relief you get from creditors may reduce the amount of money you need to get through the difficulties.


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