Hardship Loans for Bad Credit: Here are 22 Options

Hardship is defined as something that causes or entails suffering or privation. Hardship had not been in short supply for the past couple of years for millions of Americans since the start of the COVID-19 pandemic. And now, inflation rates are skyrocketing, and economic experts are warning of an impending recession.

Read on if you are in the market for a loan but have less than stellar credit.

Hardship Loans: What You Need to Know

Getting accepted for a personal loan has become significantly more complex as lenders restricted lending to protect themselves from the risk of rising unemployment and a worsening economy due to the Coronavirus pandemic and its aftermath. 

These hardship loans were once more common when COVID-19 was more prevalent. A worsening economy coupled with rising interest rates is becoming more challenging to get approval. You have three primary sources for a personal loan: banks, credit unions, and online lenders.

20 Options for Hardship Loans

Bad Credit Loans

Online lenders are an alternative to traditional banks. They offer unsecured and secured personal loans for borrowers with fair to good credit.

LenderAPRLoan lengthLoan amountMinimum credit score
Avant9.95 to 35.95%1 to 5 years$2,000 to $35000550
Best Egg7.99 to 35.99%3 to 5 years$2000 to $50,000660
Happy Money5.99 to 24.99%2 to 5 years$5,000 to $40,000640
Upstart5.42 to 35.99%3 to 5 years$1,000 to $50,000None

Secured Personal Loans

Secured loans are debt products that are protected by collateral. In a secured loan, the lender will want to know which assets you plan to use to back the loan. The lender will then place a lien on that asset until the loan is repaid. A personal loan’s average minimum credit score is 640 to 650.

Collateral or help from a co-signer can help borrowers with poor credit obtain a personal loan, but improving your credit score can help you get a better interest rate.

LenderAPRLoan lengthLoan amountMinimum credit score
Digital Federal Credit Union7.99 to 18%3 to 60 months$200 to $100,000580
OneMain Financial18.00 to 35.99%2 to 5 years$1,500 to $20,000600-650
Regions Bank4.74% to 16.49%1 to 5 years$2,000, to $50,000750-800
Upgrade7.46 to 35.97%2 to 7 years$1,000 to $50,000560

Joint (or Co-Signed) Personal Loans

Joint borrowing involves taking out a loan or financing with another person, often called a co-borrower or co-signer. If your application is approved, the joint personal loan is issued in both of your names, and you are both legally liable for repaying the debt.

It would be best if you had a minimum credit score of 610-640 and a shared debt-to-income ratio of under 35% for approval.

LenderAPRLoan lengthLoan amountMinimum credit score
SoFi7.99 to 23.43%2 to 7 years$5,000 to $100,000650
LightStream3.99 to 19.99%Up to 120 months$5,000 to $100,000660
FreedomPlus7.99 to 29.99%24 to 60 months$7,500 to $50,000600
U.S. Bank8.24 to 20.74%12 to 84 months$1,000 to $50,000660

Credit Union Personal Loans

Credit unions are not-for-profit financial organizations and member-owned institutions. Unlike traditional big banks, they don’t need to turn a profit for investors. Credit union personal loan rates can be more competitive than those at big banks.

They require a membership to become a member. It would help if you lived in a particular area, worked in a specific company or industry, or fulfilled some other requirement. 

Although online lenders may offer just as competitive loans, they have no physical branches, unlike a credit union.

LenderAPRLoan lengthLoan amountMinimum credit score
Navy Federal Credit Union7.49% to 18.00%Up to 60 months; up to 180 months for home improvement loans$250 to $50,000700
First Tech FCU6.70% to 18%12 to 84 months$500 to $50,000660
Alliant FCU6.24 to 27.24%12 to 60 months$1,000 to $50,000630-719
PenFed FCU4.99 to 17.99%12 to 60 months$600 to $50,000600

401(k) Hardship Withdrawal

A 401(k) hardship withdrawal is a withdrawal from a participant’s account made because of an immediate financial. It is limited to the amount necessary to satisfy that financial need. The money is taxed and is not paid back to the borrower’s account. 

It isn’t a loan and doesn’t require you to pay back the amount you withdrew from your account. You’ll pay income taxes when making a hardship withdrawal and potentially the 10% early withdrawal fee if you withdraw before age 59½.

Qualifying Circumstances Include:

  • Medical expenses
  • Funeral expenses
  • Education expenses, like tuition or room and board
  • Costs related to purchasing or repairing a home (excluding mortgage payments)
  • Charges related to preventing eviction or foreclosure

Bank or Credit Union Hardship Programs

Hardship loans are a type of personal loan that have more favorable terms. Features include faster funding, lower interest rates, and deferred payments. Some financial establishments have offered coronavirus hardship loans to help with basics such as rent, utility bills, and credit card payments.

Each lender has different requirements, but generally, you need a loan application, credit history or score, income, and a maximum debt-to-income ratio of 43% to get approval. 

Peer-to-Peer Loans

Peer-to-peer lending websites connect borrowers directly to lenders or investors, also known as crowdfunding. You would state how you would spend the money and why lending you the money is a reasonable risk.

Reddit is one popular community that facilitates peer-to-peer loans between users. Only users with a minimum level of cumulative karma and account age are eligible to join the community. /r/Borrow is a subreddit aimed at helping Redditors who are temporarily in need of money and will be able to pay it back in a short period. Those seeking loans post publicly on the subreddit, and those willing to fulfill loans respond.

Other Fast Loan Options

  • Payday Alternative Loans: PALs are offered through credit unions as a better alternative to payday loans.
  • Cash advance apps: These apps, like Dave or Albert, offer small short-term loans but don’t charge interest. Instead, you pay an optional tip and, in some cases, a small monthly membership fee.
  • Home equity loan or line of credit: These can be a good way to consolidate debt if you’re a homeowner with less-than-ideal credit.

Not sure how a home equity loan works? Check out this video to learn more:

How to Apply for Hardship Loans

  • Check your credit score and review your credit report
  • Get prequalified with multiple lenders
  • Compare loan offers
  • Choose the best and formally apply
  • Sign your closing documents
  • Wait for the funds to be deposited into your account

The Bottom Line

Hardship isn’t fun, and we experience difficulty in many different ways. Many suffering financially when we cannot pay the bills is all too common. We may find ourselves under great stress during unemployment or unexpected expenses with no way out. But as with everything in life, there are solutions.

FAQs

Will a Hardship Loan Affect My Credit Score?

Yes, like with any other loan, mortgage, or credit card application, applying for a personal loan can cause a slight dip in your credit score. The small drop is because lenders will run a hard inquiry on your credit, and every time a hard inquiry is pulled, it shows up on your credit report, and your score drops a bit.
But how it could affect your credit scores after a hard pull on your credit can also be hard to predict. That’s because there are many different credit scoring models from companies like FICO and VantageScore. It will also depend on your unique financial situation. But generally, a personal loan could either help or hurt your credit scores.
Making a soft inquiry or going through a pre-approval process will not impact your credit score. Once approved for a loan, the age and amount of the loan could affect your credit scores and your debt-to-income ratio, which is part of what lenders use to determine creditworthiness. Making on-time payments and a credit mix is also essential to your whole financial picture.

Can I Still Qualify for a Coronavirus Hardship Loan?

Some online lenders are still offering coronavirus hardship loans. These loans are for individuals who need help paying medical or other bills but can’t prove significant income loss due to the pandemic. If you’re having trouble making ends meet but are unsure if you qualify for a hardship loan, you could qualify for a low-interest personal loan with an online lender. You will need to contact your preferred online lender for more details.
Suppose you’ve been affected financially by the COVID-19 pandemic, and you own a single-family home with a federally backed or FHA-insured mortgage. In that case, you can request mortgage forbearance or a pause in making mortgage payments. You now have until the end of the COVID-19 National Emergency to request forbearance for loans backed by HUD/FHA, USDA, and VA. There is currently no deadline for loans backed by Fannie Mae and Freddie Mac.

How Large is a Hardship Loan?

Borrowers can take out hardship loans from hundreds of dollars up to $5,000. They’re characterized as small dollar amounts with low-interest rates, short repayment periods, and deferred payment options. These loans are not typically advertised, so you would have to call your bank or credit union to inquire if they offer them.

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