Looking for ways to get help with bad credit? Many people consider using hardship loans. This article has all the information you need to determine if a hardship loan is the right choice for you or not.
Getting yourself out of bad credit can take years, especially when you are only financially able to make the minimum payments on your credit cards and loans. Hardship loans might be a good option to help you get back on track before your credit drops even further.
Hardship loans are built for people who need help with basic items like rent, credit card balances, and utility bills. They often come with better terms than regular loans because they have faster funding, deferred payments, and lower interest rates.
No matter why you might be experiencing financial hardship, hardship loans can be a good option. Many people choose to use them to get themselves out of bad credit situations because hardship loans often have better and lower payment options. In this article, we will go over all the most important things to know about hardship loans and discuss if they might be the right option for you.
What Are Financial Hardship Loans for Bad Credit?
While personal loans have been around for a long time, personal loans solely meant for financial hardship did not really come around until COVID-19. Since many people were unemployed during this time, it became very hard for people to get loans and other forms of financial assistance.
Hardship loans became available and were good for many people because they offered fast funding and deferred payments. The interest was also lower, which allowed people to be able to pay the monthly payments easier.
Since hardship loans are a type of personal loan, they can be used for anything. Some people choose to use them to pay rent, to buy necessary items for the kids, or to pay bills. Another common way people use them is to build back credit.
When you have bad credit, getting any type of financial assistance can be hard. Lenders often look at your credit score as a determining factor to see if they will give you a loan or not. Hardship loans are easier to secure, though.
Once you have the hardship loan, you can use it to pay down your credit card bills and other outstanding debts you might have. You will then only have the monthly payment of the hardship loan, which is much more manageable than trying to pay down loans and debts from many different lenders.
You can get hardship loans from small community banks or credit unions. Make sure to specifically ask for a hardship loan and not just a personal one. You should look for a loan that has short repayment periods, deferred payments, low-interest rates, and a small dollar amount.
You can also ask online lenders or your current bank if they offer hardship loans, although many do not offer loans specifically for this. They do offer personal loans. Personal loans work much in the same way, but they do not have low APR or deferments, so the payback terms are not as good.
Although most banks and credit unions will not ask you what you're using the loan for, most people use hardship loans for things like:
- Bills for healthcare
- Unplanned expenses
- Any other basic living costs
- Paying down credit card bills to make the debt more manageable
How Can I Apply For A Hardship Loan?
Applying for a hardship loan is done much the same way as applying for a personal loan or any other type of financing. You can check out the simple steps below to get started. You can also check with the lender if they have any specific requirements before applying.
The first thing you want to do is check your credit score. Hardship loans often have lower credit requirements than other personal loans, but you still want to make sure it's at least in the fair range.
Check with lenders and see if you are prequalified with any. This makes applying easier and ensures you will get approved easier.
You should always compare loan offers before taking one. This will help you make sure you have the best deal. Make sure not to take the first offer you're given. Always review a few before taking a loan out.
The next step is to apply with the lender. Once you have picked the lender you want to work with, you can fill in the application. If you have been prequalified, there is a good chance you will get final approval.
Once the official application has been approved, you can sign the closing documents and get your funds.
Are There Alternatives To A Hardship Loan?
Since many people are wary of taking out loans or maybe are not qualified right away for a hardship loan, you might be wondering if there are alternatives to hardship loans that you can consider.
There are many alternatives to applying for hardship loans, but some are better than others. If you don't want to apply for a hardship loan, here are some other things you can consider.
Hardship Programs Through Banks And Credit Unions
Just like many banks and credit unions have hardship loans, there are also some that offer special hardship programs. These include fee waivers and forbearance programs for customers that are having financial hardship.
These programs are often given to people who also qualify for emergency assistance programs. These programs can be stricter than hardship loans, though, as you often have to state what you are using the loan for, such as a mortgage, personal loan, or using it to pay credit cards.
These programs may be able to help you pay down existing debt and then be able to build your credit back up.
401k Hardship Withdrawal
This option is a little more complicated, but many people decide to use it when they do not want to take out another loan and have more debt. If you have funds in a 401k, there are often many instances where they allow you to withdraw some of the money early to help you when experiencing economic hardship.
Keep in mind you have to pay taxes on the money that is withdrawn, which is not ideal for everyone.
Home Equity Loan Or Line Of Credit
If you own a home, you might be able to refinance your way out of bad credit with a home equity loan or line of credit. This allows you to have some extra cash that can be used how you see fit. Many people use the equity in their homes to be able to pay down credit cards and get out of a bad debt situation.
Do Hardship Loans Affect My Credit?
Like with any type of credit or loan, it has the ability to negatively or positively affect your credit report. If you pay down your credit with the loan and then also make the payments on time every month, you will see that the hardship loan will positively affect your credit report.
If you miss loan payments, you might see your credit score falling to where it was before. This is why it's always important to borrow with caution and to only take out the money you need.
How Large Are Hardship Loans?
Hardship loans are like personal loans, so they vary in amount. However, they usually cap out at about $5,000, whereas personal loans can come in much larger sizes. These are much smaller loans than other kinds of personal loans.
One of the reasons why the size is much smaller is because they are meant to be short-term loans with short repayment periods. Larger loans often have longer repayment periods. Exactly how much money you will get with a hardship loan depends on the amount you request, your income, and other qualifying factors.
Not everyone will be able to get the same amount. If you just need a small stash of cash, some personal loans are even only a couple of hundred dollars.
By now, you should have all the information you need about hardship loans and what they are used for. You should also have a good idea of how to apply for one and how much of an amount you might be able to get. Hardship loans are a nice way to be able to pay down heavy debt and get your credit score to increase quickly.
Bad credit can be a plague since it affects all your finances, including being able to take out loans and even qualifying for a mortgage. If you have bad credit, getting a hardship loan can help you get your feet back on track by paying down high debt and having lower interest payments on the loan instead. Hardship loans often have better terms like deferred payments and lower interest.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.