The coronavirus pandemic continues, and many people still face financial distress as a result. The U.S. unemployment rate was 4.8 percent in October, with 7.7 million people unemployed, according to the Bureau of Labor Statistics. While these numbers are down from earlier in 2021, they are still higher than pre-pandemic numbers. In response to the uncertainty of the pandemic, some financial institutions developed coronavirus hardship loans to help those who are struggling to pay their expenses.
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.
4 basics of coronavirus hardship loans
A coronavirus hardship loan could provide much-needed financial relief if you’ve lost all or part of your income. While there are no uniform requirements for a coronavirus hardship loan, they typically have the following features:
- They’re a type of personal loan. A coronavirus hardship loan is usually a short-term personal loan designed by banks and credit unions for those who have been financially impacted by the pandemic.
- They come in small-dollar loans. The loan is generally for a small sum of about $1,000 to $5,000. However, some financial institutions offer a higher loan limit.
- They come with low or 0 interest. The interest rate and repayment terms vary by lender, but coronavirus hardship loans typically have lower rates than other personal loans.
- They’re generally available at credit unions. While some banks and online lenders also offer this form of relief, it’s not as common.
Common uses of coronavirus hardship loans
Like other types of personal loans, coronavirus hardship loans can be used for nearly any purpose. You can typically use money from a coronavirus hardship loan the same way you might use an emergency loan. That includes living expenses such as rent, groceries and gas for your car. The loans can also be used to cover costs such as medical or utility bills.
Coronavirus hardship loan vs. traditional personal loan
Because a coronavirus hardship loan is a type of personal loan, many of the same rules and features apply to both. They’re both installment loans that require you to repay the money you borrow — along with any applicable interest — within an agreed-upon time frame.
Here’s more on how coronavirus hardship loans and traditional personal loans are different, and how they’re similar:
- Ways you can use loan funds. While both have great flexibility on how you use the money, there are some restrictions. Some lenders won’t allow you to use a personal loan for business purposes or to fund higher education.
- Rates. Since they’re meant for people in need, hardship loans charge low or even 0 interest for qualified borrowers. Traditional loans have varying interest rates that typically range from about 5 percent up to 35 percent, depending on your financial history.
- Loan amounts. A traditional personal loan may often provide as much as $40,000, and some lenders loan prime borrowers up to $100,000. Hardship loans usually offer up to $5,000, making them less useful for big-ticket expenses.
- Terms. The terms for a traditional loan will likely be longer than those of a hardship loan. Traditional loans tend to offer several term options lasting anywhere from one to seven years. Hardship loans usually give one to three years for repayment, and some lenders only offer one loan term.
- Payment deferrals. Hardship loans may have a payment deferral period, while traditional loans usually will not. Some lenders allow up to a 90-day period when you won’t have to make loan payments.
While both traditional personal loans and hardship loans can be helpful when you need extra cash, make sure you know the terms you are agreeing to. If you need a large chunk of cash that you can pay back over a longer period of time, a traditional loan may be right for you. If you just need a small amount of funds to cover some emergency expenses over a short term, you might consider a coronavirus hardship loan.
Where can I apply for a hardship loan?
Many credit unions, and some banks and online lenders, provide coronavirus hardship loans. If you’re applying through a credit union, you’ll need to be a member of the institution. If you’re not sure whether a financial institution offers a coronavirus hardship loan, give them a call or make an appointment to discuss your options. Some lenders may not list this type of loan on their website but they will work with your personal situation to create loan options that work for you.
If they have an established coronavirus loan option, You can generally apply either online or by phone. As with traditional personal loans, the lender will review your application, income, credit 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.
How to qualify
While the lending requirements and application process depend on the lender, here’s what you need to know about applying for a coronavirus hardship loan:
- You may be asked to provide documentation proving your employment status and report your income, as well as show what you will use the finds for.
- Qualifying for a loan will depend on your credit score and history.
- You’ll need to provide personal information such as your name, address and Social Security number.
Be careful of scams
The Federal Bureau of Investigation (FBI) has reportedly seen an increase in scams during the coronavirus pandemic. Make sure you are not giving out personal or banking information to an unknown source. Most financial institutions will not ask for credit card information over the phone. If you are unsure about the identity of someone contacting you, contact your lender directly to verify.
To get a hardship loan, research the loan amounts, interest rates and terms available from multiple lenders. If you’re interested in joining a credit union, use 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.
Some lenders might require proof that you’ve experienced financial hardship due to the coronavirus pandemic, so be sure to have your income statements or proof that you’re unable to pay your rent or utility bills.
Frequently asked questions
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 creditworthiness.
Who qualifies for a hardship loan?
Applicants whose credit history demonstrates solid financial habits and positive borrowing behavior, like on-time payments and no defaults or delinquencies, qualify for a hardship loan. If you have a poor credit history, you may still be eligible for a hardship loan as some lenders will check your bank account history instead of your credit score. If you’re applying for a coronavirus hardship loan through a credit union, you’ll need to be a member of the institution.