As we enter the second year of the coronavirus pandemic, many people continue to face financial distress. The U.S. unemployment rate was 5.8 percent in May, with 9.3 million people unemployed, according to the Bureau of Labor Statistics. 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. Before you apply, here’s what you need to know about them:
- They’re a type of personal loan. A coronavirus hardship loan is 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:
- Both are versatile. While both have great flexibility on how you use the money, there are some restrictions. In general, you can’t use a personal loan for business purposes or to fund higher education.
- Hardship loans generally have lower rates. Since they’re meant for people in need, hardship loans charge low or even 0 interest for qualified borrowers.
- Traditional loans have higher borrowing amounts. They 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.
- Traditional loans might have longer terms. They tend to offer several term options lasting up to five or even seven years. Hardship loans usually give one to three years for repayment, and some lenders only offer one loan term.
- Hardship loans may have a payment deferral period. Some lenders allow a 90-day period when you won’t have to make loan payments. Typically, though, the interest will start to accrue from the day your loan funds are disbursed.
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. The best place to start is a financial institution that you have an existing relationship with since it could increase the odds you’ll be approved for a hardship loan.
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’ll need to show proof of financial hardship, and you may be asked to provide supporting documentation and report your income.
- The loan amount and term you qualify for hinge on your credit score and history.
- You’ll need to provide personal information such as your name, address and Social Security number.
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.
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 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. Banks and credit unions might also have deposit or income requirements that affect your eligibility. If you’re applying for a coronavirus hardship loan through a credit union, you’ll need to be a member of the institution.