As the U.S. contends with the coronavirus pandemic, many consumers are facing financial distress. The U.S. unemployment rate is at 6.2 percent, with 10 million people unemployed, according to the latest data from the Bureau of Labor Statistics. In response to the uncertainty of the current crisis, some financial institutions have developed coronavirus hardship loans to help consumers.
“A coronavirus hardship loan can help borrowers who have lost their income, or job, due to the pandemic,” says April Lewis-Parks, director of education and corporate communications at Consolidated Credit, a nonprofit credit counseling service. “Some of these loans offer low — or even zero — interest rate periods along with deferment or flexible repayment plans.”
If you’ve been financially affected by the coronavirus crisis, find out how this relief option works and whether hardship loans are right for your situation.
What is a coronavirus hardship loan?
In March 2020, five federal regulatory agencies officially encouraged financial institutions to develop “responsible small-dollar loans” for consumers who’ve been affected by the coronavirus pandemic.
Coronavirus hardship loans, a type of personal loan, were created as a response by banks and credit unions to help their communities. These loans have the basic features of a standard personal loan, like a fixed interest rate, installment payment structure and predefined repayment term.
The main difference, however, is that hardship loans are designed specifically as short-term relief for borrowers affected by the coronavirus pandemic and have more favorable terms but lower loan amounts.
How does it work?
Each bank and credit union has different eligibility requirements and processes, but many make it simple to apply for a hardship loan online or over the phone. Applicants will need to supply personal information, like a full name, Social Security number and income, on the application form.
As with a traditional personal loan, lenders will review your income, creditworthiness and ability to repay the loan. If you’re approved, you can expect to receive funds quickly, within two to three days in many cases.
Generally, the loan is for a low amount of about $1,000 to $5,000, although some institutions offer a higher loan limit. The interest rate and repayment terms offered for hardship loans also vary by institution. However, many credit unions are offering members automatic 90-day payment deferrals during this difficult time.
Who does it benefit?
“A hardship loan may be better for someone who needs around $5,000 or less and can pay back their loan in a relatively short time period,” Lewis-Parks says.
If you’ve experienced decreased work hours or unemployment and are confident that you can regain income stability to repay the debt, a coronavirus hardship loan can help cover urgent expenses, like rent or groceries.
Where can I get a coronavirus hardship loan?
There are a few places to find a coronavirus hardship loan. The best place to start is your current financial institution.
If you have a long-established, positive relationship with your institution, it might be more willing to approve your loan application. You can also explore national and local banks, community credit unions, and online lenders to broaden your search.
Some financial institutions offer emergency loans, which can be used as short-term assistance if your finances have been adversely affected by the pandemic.
If you’re interested in joining a local credit union, you can search the National Credit Union Administration’s Credit Union Locator tool to find one near you. You can also search the American Bankers Association’s list of banks that are offering coronavirus relief options.
What are the requirements for a coronavirus hardship loan?
To take out a credit union-issued hardship loan, you’ll need to be a member. Credit unions have different fields of membership. For example, some credit unions require you to live in a specific city or region, work for a specific employer or have an affiliation with another group or association.
You may also be able to find coronavirus hardship loans at banks and online lenders, though these are less common. As with other loan products, you must meet the lender’s credit criteria and other underwriting requirements. Some financial institutions might also ask you to supply documentation about the financial hardship you’ve experienced due to the coronavirus pandemic.
Which lenders are offering coronavirus assistance for current customers?
Although the severity of the pandemic is easing, with fewer new COVID-19 cases reported weekly, some Americans are still struggling financially. Some financial institutions, including those below, are still offering coronavirus hardship loans to those who need short-term funds.
- Solarity Credit Union: The credit union offers its members coronavirus hardship loans from $1,000 to $5,000 and a 90-day deferment period on the first payment.
- Travis Credit Union: Travis’ Disaster Relief Loan Program provides eligible members with up to $10,000 in coronavirus hardship loans.
- Capital Good Fund: The Crisis Relief Loan from Capital Good Fund offers borrowers in Rhode Island, Florida, Massachusetts, Delaware and Illinois small emergency loans of $300 to $1,500.
- OneMain Financial: This lender provides emergency loans at a fixed rate, which can be funded within one hour of closing the loan.
This list is not exhaustive, but it offers examples of the coronavirus hardship loans that different lenders could provide.
Alternatives to a coronavirus hardship loan
A coronavirus hardship loan is just one way to get relief if you’ve been financially affected by the pandemic.
Traditional personal loans
Many lenders offer traditional personal loans. Funds from this type of consumer loan can be used for nearly any immediate purpose, like rent, groceries or medical bills. They’re generally offered with repayment terms up to seven years, and borrowing limits are also typically higher. Some lenders offer prime borrowers up to $100,000.
Reach out to your creditors ASAP
If you’re experiencing financial difficulty or anticipate that you won’t be able to make a payment, talk to your creditors for repayment assistance. While a hardship loan could be your only choice in some circumstances, avoiding more debt is always a better option.
“Depending on the reason you need the loan in the first place, try to negotiate your bills or expenses,” says Brandon Renfro, CFP.
Your existing creditors might have payment relief options, like short-term deferment, that you can explore during this crisis. You can also work with your lenders on lowering your payments temporarily while you regain financial stability.
This also extends to other major expenses, like housing. If you’ve been a reliable tenant and have credibility with your landlord, for example, Renfro suggests negotiating for partial forgiveness on missed rent.
The bottom line
If the pandemic has affected your financial resources and you’re in need of temporary, emergency relief, a coronavirus hardship loan can help. Its favorable terms and low borrowing cost might be more affordable than using a high-interest credit card or borrowing a standard personal loan at a higher rate.
Remember, a hardship loan is still a loan that you’re required to repay. “Paying back a loan can be hard if a new source of income isn’t in someone’s future,” Lewis-Parks says. “People looking to take out these loans probably have other debts (such as mortgages and student loans), so those who take out hardship loans should know exactly how it will affect their budget.”
Lewis-Parks also cautions against predatory lenders that might use deception to exploit vulnerable borrowers in financial need. Borrowers are advised to vet their lenders through the Better Business Bureau and regulatory agencies before moving forward with a loan.
FAQ about coronavirus hardship loans
What are good interest rates for a coronavirus hardship loan?
Currently, coronavirus hardship loans are offering competitive interest rates compared to other loan products. Some lenders are even offering rates as low as 0 percent APR for qualified borrowers.
How much can you borrow?
Borrowing thresholds differ between lenders, but hardship loans typically offer low-dollar amounts of about $5,000 or less. How much you’re approved to borrow also depends on your credit score.
Who qualifies for a hardship loan?
Applicants whose credit history demonstrates positive borrowing behavior, like on-time payments and no defaults or delinquencies, qualify for a hardship loan. Banks and credit unions might also have deposit or income requirements that could affect your application.
If you’re applying for a coronavirus hardship loan through a credit union, you’ll need to be a member of the institution.