When you buy something using?links found on our site, we may earn a small affiliate commission. This content?is reviewed &?supervised by?The?Los Angeles Times Commerce Team.

Hardship Loans: What They Are & How To Get One

  • When you take out a hardship loan, you gain access to funds that can be used to cover a financial emergency.
  • Some lenders offer hardship loans for bad credit, while the best personal loans require you to have a good or excellent credit score.
  • Before taking out this type of loan, make sure you can afford the monthly payment.
  • To qualify for a financial hardship loan, you may have to pledge something of value (collateral).
  • Compare the best rates and get a personalized quote based on your credit score with a banking app like MoneyLion.

Even if you have some money tucked away in a savings account, you may not have enough to get through a severe hardship.

Fortunately, many lenders offer loans specifically for car repairs, medical bills and other financial emergencies. If you have a hardship, taking out one of these loans may help you avoid late payments, charge-offs and other serious problems.

We created this guide to provide an overview of your borrowing options and to make sure you know what to expect when you decide to apply for a hardship loan. Learn more about what options are available to a borrower facing a financial emergency.

What is a hardship loan?

A hardship loan is a type of loan designed to help you get through unexpected financial challenges.

For example, if your car breaks down, you can use the funds from a financial hardship loan to repair it and ensure you have a reliable way to get to work each day.

You can also use a hardship loan in the following situations:

During the COVID-19 pandemic, many banks offered coronavirus hardship loans. The loans, usually issued for small amounts, were intended to help people who lost their jobs or couldn’t work due to COVID-19.?The federal government even launched the?Paycheck Protection Program?(PPP) to help business owners cover their payroll expenses during pandemic-related lockdowns.

Pros and cons of hardship loans

Pros
  • Immediate access to funds
  • Flexible use
  • Quick approval process
  • Potentially lower interest rates
Cons
  • They impact your credit score
  • Might not qualify with bad credit
  • May have origination fees

Pros explained

Cons explained

Common types of hardship loans

Hardship loans come in many forms. Here are some examples of different types.

401(k) hardship withdrawal

A 401(k) hardship withdrawal allows you to take money out of your 401(k) and use it to cover an “immediate and heavy” financial hardship. Your plan administrator has the final say over whether your financial situation qualifies as immediate and heavy. Additionally, you can only request the amount of money needed to satisfy your financial need. For example, if you need $1,500 to repair your vehicle, you can only take out $1,500.

Secured hardship personal loans

When you get a secured loan, you have to put up collateral. In the financial industry,?collateral is a valuable asset?that you use to secure a loan. If you don’t repay the loan as promised, the lender can seize your collateral and sell it. A mortgage is one of the most well-known examples of a secured loan, as your home serves as collateral for the bank.

Unsecured hardship personal loans

If you qualify for an unsecured loan, you don’t have to put up any collateral. This is a bigger risk to the bank, so you may not qualify for an unsecured loan if you have bad credit or limited credit experience.

Home equity loans

Home equity is the difference between the value of your home and the balance left on your mortgage. For example, if you owe $300,000 on a home worth $600,000, you have $300,000 in equity (50%). A?home equity loan?allows you to borrow against this equity.

Payday alternative loans

Payday loans have extremely high interest rates, making them one of the most expensive loan products available. If you can’t pay back the loan as scheduled, the lender may allow you to roll the old loan into a new one. This makes it too easy to get trapped in an endless cycle of debt.

Many credit unions offer payday alternative loans (PALs) to help you avoid this type of financial burden. PALs have?lower interest rates?and longer repayment terms than traditional payday loans, making them more manageable.

Peer-to-peer loans

With a peer-to-peer loan, you borrow money from an individual instead of a bank. This type of financial assistance usually comes with a lower interest rate than you’d get with a credit card. Additionally, the requirements aren’t as strict as those established by banks, so it’s easier to qualify if your credit report has a few blemishes.

How to get a hardship loan

To get a loan during a financial hardship, you usually need to follow the steps below:

The requirements may vary based on the lender and the type of loan you choose, so be prepared to complete additional steps if requested.

Get a quote for a personal loan with no effect to your credit score Check your eligibility and unlock your dreams with no hard credit check today! Personal Loans with Mouse Cursor LEARN MORE

Can I get a hardship loan if I have bad credit?

Yes, it’s possible to get a hardship loan with bad credit. You may have to use a peer-to-peer lender or take out a small payday alternative loan, but many lenders have options for borrowers with no credit or bad credit.

Tips for comparing hardship loans

When you’re comparing hardship loans, look at the following:

Alternatives to hardship loans

If you’re denied a loan or don’t want to get a hardship loan, there are other options available.

These are some alternatives to hardship loans:

FAQ: Hardship loans

Can I get a hardship loan if I am unemployed?

It depends on the lender. You may be able to get a hardship loan if you’re unemployed and need money to cover basic necessities. However, many lenders require proof of income, which you won’t have if you’re not working.

Can I get a hardship loan if I have bad credit?

Some lenders offer loans to borrowers with bad credit. If you need this type of loan, shop around to find a lender who’s willing to work with you.

Will a hardship loan affect my credit score?

Yes. Your score may drop a few points when the lender checks your credit. It may also decrease slightly once the loan balance appears on your credit report. This is because a new loan affects the total amount of debt you have.

Where can I get a hardship loan?

You can get a hardship loan from a bank, a credit union, an online lender or a peer-to-peer lending network.

About the Author

Leigh Morgan
Leigh Morgan Personal Finance

Leigh Morgan is a seasoned personal finance contributor with over 15 years of experience writing on a diverse range of professional legal and financial topics. She specializes in subjects like navigating the complexities of insurance, savings, zero-based budgeting and emergency fund development.

In the last five years, she’s authored over 300 articles for credit unions, digital banks, and financial professionals. Morgan is also the author of “77 Tips for Preventing Elder Financial Abuse,” a book focused on helping caregivers protect the elderly from financial scams.

In addition to her writing skills, she brings real-world financial acumen thanks to her previous experience managing rental properties as part of a $34 million real estate portfolio.

About the Reviewer

Blake Esken
Blake Esken Los Angeles Times

Blake Esken has over 15 years of experience in product management and has been a member of the Los Angeles Times staff for over five years.

As part of his role at the Los Angeles Times Commerce Team, Blake acts as the in-house reviewer and fact checker for LA Times Compare. He supervises all content for compliance and accuracy and puts to use skills he has honed through years of experience managing high-stakes projects for a range of industry-leading companies.

He has a strong background in data analysis, compliance, and communication, which allows him to support LA Times Compare through fact-checking in an effort to provide up-to-date and factual information across our content.

BACK TO TOP
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news
news