If you have a financial shortfall or an emergency expense, a hardship personal loan can be used to cover it. A tight budget can be stretched to its limit when unexpected expenses come up. You may need emergency surgery, or you may need four new tires for your car.
Taking a personal loan can help spread out payments over several months or even years if you don’t have a credit card (or you don’t want to use one) and don’t have enough savings to cover the entire expense. However, you’ll owe interest on the amount you borrow, increasing the expense’s overall cost. This can transform a huge bill into small, manageable monthly payments.
What Is the Process of Getting a Hardship Personal Loan?
In general, hardship loans come with fixed interest rates and monthly payments until the balance is repaid. The funds you receive from a hardship loan can be used for paying bills, catching up on rent, or taking care of other financial obligations.
You are likely to pay high-interest rates for personal loans if you have a limited credit history. If you apply for a loan with a co-signer with good credit, you may be able to get a better rate. In addition to loan interest, there could be an upfront origination fee ranging from 1% to 8% of your loan.
An example of the cost of a hardship personal loan
With an APR of 25% and a loan term of 24 months, your payments would be $266.86 per month, and over the two-year loan term, you would spend $1,404.58 in interest. Increasing your loan term can reduce your monthly payment, but you’ll pay more interest over the life of the loan.
Hardship Personal Loan Application Process
A hardship loan can be obtained in much the same way as any other personal loan. Here are the steps to getting a hardship loan:
Make sure your credit report is accurate
When you pull your credit report before borrowing, you won’t harm your score, and you may find opportunities to improve it. A higher credit score will improve your approval odds and lower your interest rate.
Interest rates can be compared
Obtain prequalifications from multiple lenders to compare costs before choosing a loan.
Obtain a co-signer
Applying with a co-signer could help you secure a lower interest rate on a hardship loan if you can’t qualify on your own.
Financial documents must be submitted
To verify your income, lenders may request bank statements or pay stubs. Providing these documents quickly could expedite loan approval.
Sign off on loan documents after reviewing them
After the loan is approved, you’ll receive the loan contract to review and sign. This is another opportunity to make sure loan payments fit comfortably into your budget.
Get loan funds
Last but not least, you will receive your cash. If it is not directly deposited into your bank account, you will receive a check. Check here
Hardship Personal Loans: Advantages and Disadvantages
There are advantages and disadvantages to taking out a hardship loan. Here are the good and bad of hardship loans.
Advantages
- Spreading out debt payments over several months or years can be easier on your budget.
- Often, you can prequalify for a loan without affecting your credit score.
- You may be able to get a better interest rate by applying for loans with a co-signer.
- You know when you’ll be debt-free as long as you make each payment on time.
Disadvantages
- Hardship loans are harder to qualify for if you have bad credit.
- Borrowers with bad credit tend to pay high-interest rates.
- It is possible for lenders to charge upfront origination fees.
Poor credit hardship Personal loans alternatives
In addition to hardship loans, there are other loans and strategies that may be able to help you make ends meet.
1. Payday Alternative Loans (PALs)
When you need money quickly, federal credit unions offer PALs, which can be an alternative to expensive payday loans. The loan amounts go up to $2,000, so if you need a larger sum, this wouldn’t be a great solution. They usually have flexible eligibility requirements and a maximum interest rate of 28% APR.
2. Borrow from family or friends
By arranging a loan with someone you know, you might be able to avoid applying for a bank loan. It is important to come up with an interest rate and payment schedule in writing so that both of you are comfortable with it. You should prioritize paying back the sum by the agreed-upon date once an agreement is signed.
3. Request an extension of your bill or a payment plan
If you’re having trouble keeping up with a bill, call up the bill issuer as soon as possible. You may be able to negotiate a payment arrangement directly with them instead of borrowing money. Low-income households or people who have experienced financial hardship, such as losing their job, may even have special programs available.
The best options for people with no credit history
# Upstart Personal Loans
- Annual Percentage Rate (APR)
4.60% – 35.99%
- Loan purpose
Debt consolidation, credit card refinancing, home improvement, wedding, moving or medical
- Loan amounts
$1,000 to $50,000
- Terms
36 and 60 months
- Credit needed
A credit score of 300 on at least one credit report (but will accept applicants whose credit history is so insufficient they don’t have a credit score)
- Origination fee
0% to 12% of the target amount
- Early payoff penalty
None
- Late fee
The greater of 5% of the last amount due or $15, whichever is greater
For whom is this intended?
The lender is ideal for those who do not have enough credit history to qualify for most other loans and forms of credit. The lender is also ideal for those who have a credit score that’s below average.
Plus, Upstart may be able to disburse your funds quickly. If you accept the loan before 5 p.m. EST Monday through Friday, you could get your money as soon as the following business day.
Furthermore, Upstart does not charge any prepayment penalties. If you choose to pay off your loan early, you will not be penalized.
# OneMain Financial Personal Loans
- Annual Percentage Rate (APR)
18.00% to 35.99%
- Loan purpose
Debt consolidation, major expenses, emergency costs
- Loan amounts
$1,500 to $20,000
- Terms
24, 36, 48, 60 Months
- Credit needed
Poor/Fair
- Origination fee
Flat fees start at $25 to $500 or percentage ranging from 1% to 10% (depending on your state)
- Early payoff penalty
None
- Late fee
Up to $30 per late payment or up to 15% (depending on your state)
Information about OneMain Financial’s secured loans:
Applicants who do not qualify for an unsecured personal loan with OneMain Financial may be offered a secured loan. With a secured loan, borrowers can potentially qualify for lower interest rates by using their vehicle’s equity. OneMain Financial’s site offers more information about rates, repayment terms, and agreements that vary by individual and state.
Even Financial provided the link to OneMain Financial. They offer consumer loans in 44 states (AK, AR, CT, DC, MA, RI, and VT are not available). According to the CFPB’s Regulation Z, loan proceeds cannot be used for postsecondary educational expenses, such as college, university, or vocational expenses; for business or commercial purposes; for securities purchase; or for gambling or illegal activities.
As an example, a $6,000 loan with a 24.99% APR, repayable in 60 monthly installments, would have $176.07 in monthly payments.
Secured offers require a first lien on a vehicle that meets our value requirements, is titled in your name, and is insured. A lien is placed on the collateral until the loan is repaid in full by the lender. Vehicles may not be pledged as collateral by active duty military, their spouses, or dependents covered by the Military Lending Act.
Funding options; availability of funds: Loan proceeds may be disbursed by check or electronically to the borrower’s bank account through Automated Clearing House (ACH) or debit card networks (SpeedFunds). SpeedFunds allows you to access funds on the loan closing date with a debit card issued by your bank. ACH funds are available approximately one to two business days after the loan closing date.
The following states have minimum loan amounts: Alabama: $2,100. California: $3,000. Georgia: $3,100 minimum loan amount unless you are a current customer. Ohio: $2,000. Virginia: $2,600.
There are maximum unsecured loan sizes for borrowers (other than current customers) in these states: North Carolina: $7,500.
For whom is this intended?
A good option for people who want different repayment options, OneMain Financial offers terms ranging from 24 to 60 months.
There are no early payoff penalties with OneMain loans (this can vary by state). This lender offers loan amounts ranging from $1,500 to $20,000. The origination fee, however, ranges from $25 to $500 or 1% to 10% of the amount of the loan you’ve taken out, depending on your state. Depending on your state, late fees can vary from $1 to $30 per late payment or 1.5% to 15% of the last payment amount you missed.
While most personal loans are unsecured, OneMain Financial offers borrowers the option to use collateral to get better loan terms, such as a lower interest rate.
# Avant Personal Loans
- Annual Percentage Rate (APR)
9.95% to 35.99%
- Loan purpose
Debt consolidation, major expenses, emergency costs, home improvements
- Loan amounts
$2,000 to $35,000
- Terms
12 to 60 months
- Credit needed
Poor/Fair
- Origination fee
up to 4.75%
- Early payoff penalty
None
- Late fee
Up to $25 per late payment after a 10-day grace period
For whom is this intended?
If you need money in a pinch, Avant Personal Loans may be a good option. You can receive your funds as early as the next day if you are approved by 4:30 p.m. CT Monday through Friday. Quick funding can, of course, be influenced by whether you provide all the necessary information in a timely manner.
If your credit score isn’t great, Avant still considers both your income and credit score when approving loans.
Loan terms range from 12 to 60 months, and you can borrow as little as $2,000 or as much as $35,000.
If you fail to make your payment within ten days of the due date, this lender charges a late fee of $25. Origination fees range from 0% to 4.75% of the loan amount.
# LendingPoint Personal Loans
- Annual Percentage Rate (APR)
7.99% to 35.99%
- Loan purpose
Debt consolidation, weddings, car repair, home renovations, and more
- Loan amounts
From $2,000 to $36,500
- Terms
24 to 72 months
- Credit needed
Poor/Fair
- Origination fee
Origination or other fees from 0% to 8% may apply depending upon your state of residence
- Early payoff penalty
None
- Late fee
Currently, LendingPoint does not charge any late fees but reserves the right to assess late fees of up to $30. Fees vary by state.
For whom is this intended?
LendingPoint offers pre-qualification so you can check the terms of your potential loan without affecting your credit score. The biggest attraction of LendingPoint, however, is that you will receive your approval decision in seconds after applying. It typically takes one business day for the funds to be received.
Applicants must have a minimum annual income of $35,000 to qualify for this loan, and residents of Nevada and West Virginia cannot apply. LendingPoint considers a number of factors when determining eligibility for a loan, including credit score, loan term, credit usage, and loan amount.
There is a range of loan amounts starting at $2,000 to $36,500, and the loan term can range from 24 to 72 months. The origination fees range from 0% to 8%.
What is considered a bad credit score?
Here is how lenders classify “fair” and “poor” credit scores:
FICO Score
- Very poor: 300 to 579
- Fair: 580 to 669
- Good: 670 to 739
- Very good: 740 to 799
- Excellent: 800 to 850
VantageScore
- Very poor: 300 to 499
- Poor: 500 to 600
- Fair: 601 to 660
- Good: 661 to 780
- Excellent: 781 to 850
It is likely that credit scores below 670, and certainly scores below 600, will disqualify you for the best personal loans. However, if you are in a pinch, it may not be impossible to get a loan with a credit score in the high 500s or low 600s.
Frequently Asked Questions (FAQ)
- Are hardship loans a good idea?Any major unexpected expense should be covered by your emergency fund. However, sometimes the funds you saved may not be enough to cover the entire expenditure – or, you may not have built one at all.Consider your financial situation and seek personalized advice from a financial expert before you decide whether a hardship loan is a good idea. A hardship loan may make sense if a person does not have enough cash in their emergency fund to cover a large expense but can devise a feasible repayment plan for the loan.
- What qualifies as a financial hardship?Financial hardship can be a situation where your income has gone down or your expenses have gone up, but it’s not always the result of an unexpected event. Financial hardships can be caused by any number of things, like being unemployed or having to spend money on medical bills because of an illness. In many cases, you’ll need to provide proof of your hardship, like a letter from your doctor.
- How easy is it to get approved for a loan?The easiest loan to get approved for is typically what’s known as a payday loan since it’s a short-term loan often aimed at people who need money in a pinch. Despite this, payday loans are considered a predatory form of lending by the ACLU because their interest rates can be as high as 400%.
- If I can’t get a loan, where can I get money?It may be possible for you to apply for unemployment benefits if your hardship is due to being laid off and losing your income. Keep in mind that each state has its own guidelines for unemployment benefits.The possibility of family assistance may be a viable option if you are unable to file for unemployment benefits or your situation doesn’t involve the complete loss of your income. In many cases, borrowing money from a family can cause tension or conflict, and it can be risky.If you’ve exhausted all other funding options, you may start thinking about payday loans, which are considered predatory loans because of their high-interest rates. If you apply for one, make sure you have an income to make payments on it. As a result of the high interest on payday loans, they’re notoriously difficult to pay off, so if you don’t have an income to repay them, your balance will continue to grow and become difficult to manage.
- Is there a difference between secured and unsecured loans?Secured loans are loans that are secured by collateral. Mortgages and car loans are two of the most common secured loans, but you can use any kind of financial asset as collateral. If you don’t pay back your loan, the bank can take your collateral. Repossessions stay on your credit report for up to seven years.Unsecured loans require no collateral, but they still come with interest and fees. Student loans, personal loans, and credit cards are all unsecured loans.In order to give out unsecured loans, financial institutions rely heavily on your credit score, income, and past debt repayment history. As a result, unsecured loans may have higher interest rates (but not always).
Methodology
A Select analysis of dozens of U.S. personal loans, including those offered by large credit unions and online banks, determined which hardship personal loans are best for consumers with bad credit. The loans we chose on this list were those that had no origination or sign-up fees, but we also included loans with lower credit scores. Some of them have origination fees.
We narrowed down and ranked the best personal loans based on the following features:
- Fixed-rate APR:
You can lock in a fixed rate APR for the duration of the loan’s term, so your monthly payment won’t change over the term of the loan, making budgeting easier.
- A flexible minimum and maximum loan amount/term are available:
Depending on your monthly budget and how long you need to pay back your loan, every lender offers more than one financing option.
- There are no penalties for paying off early:
Paying off loans early is not charged by the lenders on our list.
- Process for streamlined application:
It was important to consider whether lenders offered same-day approval decisions and a fast online application process.
- Support for customers:
The loans on our list offer telephone, email or secure online messaging customer service. We also chose lenders with online resource centers or advice centers to educate you about the personal loan process and your finances.
- Disbursement:
Loans on our list offer prompt disbursement through either an electronic wire transfer to your checking account or a paper check. Some lenders (which we noted) also offer direct payments to your creditors.
- Discounts for autopay:
You can lower your APR by 0.25% to 0.5% by enrolling in autopay with some lenders.
- Limits on creditor payments and loan sizes:
Lenders above offer loans ranging in size from $1,000 to $100,000. You can get an idea of your interest rate and monthly payment for such an amount by completing a preapproval process. Each lender advertises its respective payment limits and loan sizes.
Lenders often conduct a hard credit inquiry and request a full application before approving you for a loan, which could require proof of income, identity verification, proof of address, and more.