How to apply for a hardship personal loan

Financial hardship can hit anyone, and reaching out for help is a strong, practical step forward. If you're facing a setback or unexpected expense, a hardship personal loan may be one option worth exploring as you work toward steadier ground and a little more peace of mind.

Hardship personal loans come from private lenders and aren't the same as hardship programs. If you meet the lender's requirements, you can borrow a lump sum of money to get you through tough times.

Not sure if you're eligible, or even how to find out? This guide will explain how to find and apply for an emergency hardship loan, plus offer alternative options that might suit your situation better.

What is a hardship personal loan?

Hardship personal loans are intended to help you get through a period of financial difficulty, such as unexpected medical bills or job loss. You apply for a hardship loan as you would any other personal loan.

Hardship loans tend to be for smaller amounts than other personal loans because they're intended to help you deal with a temporary setback. These loans generally also have shorter repayment terms. Because of this, they may have more flexible requirements.

If you're approved for a hardship personal loan, you'll receive a lump sum of money to use as you need. Then, you'll repay the loan on a set repayment schedule, with interest.

How a hardship loan works

A hardship personal loan is a lump-sum loan paid out all at once at closing. Then, you repay the loan in fixed monthly installments over a set term. Personal loans typically have fixed interest rates, so your monthly payment stays the same for the life of the loan.

Some lenders charge an origination fee to cover the cost of processing the loan. It can range from 0% up to 12% of the loan amount. The origination fee is usually subtracted from your loan before the money reaches you.

Most personal loans are unsecured, so lenders don't require collateral or assets to back up the loan. If you have trouble getting approved for an unsecured loan, you could consider secured personal loans, which require some type of collateral.

How is a hardship program different from a hardship loan?

Emergency hardship loans from personal loan lenders differ from other hardship relief options. Most of these require you to meet strict criteria for financial hardship. For example:

• Hardship withdrawals from 401(k) accounts and 401(k) loans let you take money from your retirement savings to cover specific financial hardship situations.

• Employer hardship programs or loans are offered through your employer and may or may not have interest or other fees. Federal employees, for example, may be eligible for help from the Federal Employee Education and Assistance Fund, or FEEA.

In many cases, a hardship personal loan does not require borrowers to prove financial hardship and may allow them to use the funds for a variety of expenses. However, requirements and restrictions vary by lender.

With a hardship personal loan, you typically:

• Find a personal loan lender offering loans with terms that fit your needs and budget

• Apply using the standard loan application process for personal loans

• Use the money to meet your needs, including covering everyday expenses as you cope with financial hardship

Who qualifies for a hardship personal loan?

Here are some situations that could qualify for a hardship personal loan:

• Severe illness or other medical emergency

• The unexpected death of a loved one

• Victims of a natural disaster who experienced financial loss

• Job loss or drop in income

• Drivers who need emergency car repairs

Even if you're facing hardship, you still often need to meet the lender's standard requirements for getting a personal loan. Lenders will typically check:

• Your credit score

• Your income, as lenders want proof of your ability to pay

• Your debt-to-income ratio (your monthly debt payments and housing costs compared to your income)

In some cases, you may need to submit proof of your hardship, though that will vary a lot by lender and loan.

Most lenders, even those offering hardship loans, want to make sure you have the means to repay the debt. If your financial hardship includes a loss of income, you may have to shop around more to find a lender willing to lend you money.

How to boost your approval odds with lower credit

Lower credit may not always automatically shut you out from a hardship loan. A few concrete steps could improve your approval odds:

• Check with your local credit union or look for lenders that specialize in borrowers with lower scores.

• Apply with a co-borrower or co-signer who has stronger credit. A co-borrower shares the funds and repays with you, while a co-signer only guarantees the loan.

• Offer collateral for a secured loan to lower the lender's risk.

• Ask for a smaller amount and a shorter term to make approval easier.

Remember that you can count income beyond a traditional paycheck. Many lenders also accept other sources of income such as Social Security, disability, child support, or alimony.

Documents you may need to apply

When you apply for a hardship personal loan, you'll need to provide certain documents as part of your loan application. Have these documents ready in advance to speed up your timeline for getting a personal loan by minimizing delays.

Here's what you may need to include:

• Government-issued ID

• Proof of income

• Bank statements

• Employer contact information

In addition, you may be asked to show documentation of your hardship, such as a layoff notice, medical bills, or denial of unemployment. When a lender reviews proof of hardship, it's checking for a documented change in your income or expenses. Your evidence should detail how your income or expenses have been negatively impacted.

How to apply for a hardship personal loan in 4 steps

Here are four simple steps to know about to complete the application process for a hardship personal loan:

1. Determine how much you need to borrow. Borrow only the minimum you need to get through your financial difficulties.

2. Gather documents. Your application process could be a little smoother if you have the required information ready for the lender.

3. Compare loan offers. Look at interest rates, repayment terms, and any origination fees to find a loan that's as affordable as possible and with a monthly payment that fits your budget. Use prequalification to get quotes without impacting your credit score.

4. Submit a free loan application. You can often apply online for most hardship loans, though you may need to visit in person if you're using a local credit union or regional bank.

Once you have submitted your application, your lender will review it and let you know whether your loan has been approved or denied. If approved, funding is often within a few business days, though it could take longer with some lenders.

Where to get a hardship personal loan

While a few lenders may have specific hardship loans, most people use a regular personal loan to cover costs during a hardship situation. Some common places to get a personal loan include:

• Online lenders. You can easily compare rates by shopping loans online, and the application process could be easier than applying in person. Achieve Personal Loans is one place to start. You can check your estimated rates without affecting your credit score.

• Credit unions and community banks. Credit unions are member-owned and often have a relationship with their members, so they may be more willing to work with those who need help.

• Nonprofit lenders, which are usually run by community or faith-based organizations. For example, the Jewish Free Loan Association offers loans to struggling families in a few California counties. You can search for programs like this in your local area.

• Employer-based hardship loan programs, including employee assistance funds, which some large employers offer. Employers and sometimes other organizations donate to these funds, which may be administered by non-profit partners to provide anonymity for workers. Employee assistance funds make grants or interest-free loans available to employees with documented hardships.

Employer-based hardship loan programs will usually have different qualifying criteria and a different application process. Talk to an HR representative at your company about how to apply if you're interested in this type of loan and your company offers one.

How long does approval and funding take?

The timeline for loan approval varies by lender. You may get approved quickly, either instantly or within a few hours, or it may take several days to get loan approval. Many hardship loans are approved fairly quickly since the amounts are lower than typical personal loans and the loans are intended to help someone facing an emergency.

Some lenders also provide fast funding, making money available as soon as the day you're approved. Others could take several days to a week or more to deliver the funds to your bank account.

Alternatives to hardship personal loans

Before you take out a personal loan, consider other options that don't involve borrowing. Unlike a loan, a grant doesn't have to be repaid, so grant programs are worth checking first. Some of those options include:

• Government hardship programs. The government offers benefits including the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and rent assistance. Benefits.gov is a good place to find out what benefits you may qualify for.

• 401(k) hardship withdrawal. You may be able to withdraw money from your 401(k) if you have an immediate, heavy financial need and your company plan allows hardship withdrawals. You may owe taxes on the withdrawal. Consult a tax professional to learn more.

• Payment plan with creditors. Your creditors may be willing to pause payments, lower your interest rate, or otherwise help you work out a plan if you're facing demonstrable financial hardship.

• Payday alternative loans (PALs). Federal credit unions offer these short-term, small-dollar loans, which are regulated by the National Credit Union Administration.

• Nonprofit assistance programs. Some nonprofits offer help to those facing hardship. Religious and community charitable organizations in your area may provide support.

• Utility hardship programs. Utility companies, like the water and electric company, usually have special programs to reduce costs or spread out payments when you're struggling to pay.

Avoid payday, title, and pawn shop loans, which can carry very high costs. For example, a $15 fee per $100 borrowed on a payday loan equals an annual percentage rate (APR) of almost 400%.

Most of these options will require you to demonstrate financial need. This could mean showing the cause of your hardship, such as medical bills or a termination notice from your job.