Hardship loans: how to borrow during setbacks
Challenging times happen, but you can get money to help

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Life happens, and even the most meticulous budgeter can’t predict when a financial crisis will hit their wallet. Hardship loans, which are similar to personal loans, make it possible to get through situations like a medical emergency or job loss. These loans are still debt and can add to your financial burden.
The following helps you understand the ins and outs of taking out a hardship loan and whether or not this is the right decision for you and your situation.
Hardships are considered an event that makes it hard to afford immediate and heavy financial responsibilities.
Jump to insightThe main types of hardship loans include emergency loans, personal loans, 401(k) hardship withdrawals and HELOCs.
Jump to insightBefore applying for a hardship loan, research free resources available in your community.
Jump to insightWhat is a hardship loan?
Make sure to pay attention to repayment terms and interest rates before getting a hardship loan. Terms may be shorter and rates may be higher than with other loans.
Hardship loans are a type of loan for anyone who is experiencing a financial setback or crisis, whether from a sudden job loss, medical event or other situation that causes a lack of income. They can be used for a variety of purposes, including paying bills, buying food or even emergencies.
Although these loans are designed to help borrowers in tight money situations, you’re still taking on debt. Ask yourself if adding a new source of debt to your finances will give you the boost you need or will make budgeting harder. Don’t take on the debt if it will further complicate your financial situation.
What can hardship loans be used for?
Hardship loans are a lot like personal loans and can be used to cover almost anything, from buying food to significant expenses during a financial crisis. Examples of things that hardship loans can cover include:
- Car repairs
- Clothing expenses
- Funeral expenses
- Groceries and food
- Home repairs
- Medical bills
- Mortgage or rent
- Relocation expenses
- Utilities
How do you qualify for a hardship loan
Each lender defines qualifying hardship situations differently. In general, a hardship is a sudden decrease in income that puts you on a tight budget or creates overwhelming expenses. Some common examples include:
- Damage to your primary residence
- Funeral costs for a spouse, child or dependent
- Starting long-term medical treatments, like chemotherapy
- Sudden unemployment
- Unexpected medical emergencies
Other situations, such as military deployment, incarceration, divorce or natural disaster, may also qualify you for a hardship loan. Business owners looking for a hardship loan will need to check with their local or state government to determine eligibility.
Lenders and financial institutions have hardship loans in place, but the qualification criteria might be stricter. For example, a 401(k) hardship withdrawal has limits on what is considered a hardship and how much money you can borrow. You might also have to call or inquire in person rather than apply online.
Also, some lenders might have restrictions on what you can use your loan for. Make sure you read the fine print before applying for one of these loans to increase your odds of approval.
Pros and cons of hardship loans
As with any loan, there are pros and cons. Taking out a hardship loan is still acquiring debt, and it's up to you to decide if the pros of that debt outweigh the cons.
Pros
- May be available with a lower credit score
- Often don’t require collateral
- Can help you avoid high-interest debt, like payday loans
- Provide short-term financial relief during a crisis
Cons
- Often come with shorter repayment terms
- Tend to have higher interest rates than traditional loans
- Add to your overall debt load, which can be risky in a tight budget
Some borrowers are grateful for the assistance and able to make a hardship loan work in their favor, while others find themselves in a worse financial situation. Tokesha, a ConsumerAffairs reviewer from Wisconsin, said, “I am facing a financial hardship and I called (the lender) to explain my situation and both customer service reps had compassion for my situation and helped me with applying for a three-month hardship (loan) that could be extended at the (end of the] three months.”
...I called (the lender) to explain my situation and both customer service reps had compassion for my situation and helped me with applying for a three-month hardship (loan) that could be extended at the (end of the) three months. ”
How to apply for a hardship loan
Applying for a hardship loan is very similar to applying for a personal loan or auto loan:
- Check your credit score: Before you start, know where your credit score stands. Hardship loans might have a lower credit score requirement and be easier to get if you have bad credit, but expect a higher interest rate if you have a lower credit score.
- Get prequalified: Before you commit to a loan, you can see how much money you can receive and the annual percentage rate (APR) by getting prequalified. This can help you decide if a hardship loan is your best option.
- Compare options: Once you know your rate, you can see if other lenders or types of hardship loans are more affordable.
- Apply: Completing the full application will require more information, such as your income and information about the qualifying hardship. During this step, the lender will do a hard credit inquiry, which will impact your credit score.
- Sign documents: After your application has been approved, you’ll be able to review the terms of your loan agreement. If you agree to the terms, you can sign — the last step before you receive your funds.
» MORE: Best bad credit loans
Different types of hardship loans
If you’re considering a hardship loan, it’s important to know your options. There are several types of loans, and you should consider the pros and cons of each one before applying.
- Emergency loans: These are fast loans that can cover a multitude of emergencies. Some lenders may even send your funds an hour after closing. However, the APR on these can be high. Depending on your credit score, APRs can be up to 36%.
- Personal loans: You can use a personal loan for many financial needs. The fixed term helps you know how much to budget each month to repay your loan. Each lender sets its credit score requirements, so some applicants with bad credit might be denied. However, if you’re approved, you can use the funds for almost any expense.
- 401(k) hardship withdrawal: A 401(k) hardship withdrawal lets you take money out of your retirement account for an immediate and significant need, like medical bills or avoiding foreclosure. Unlike a 401(k) loan, this money isn’t paid back into your account. You also can’t withdraw extra to cover the taxes or penalties you’ll owe.
- Payday alternative loans (PAL): Offered by select credit unions, these loans are a safer alternative to payday loans. You can use a PAL for any expense, but $2,000 is the maximum amount you can receive. Instead of paying interest, borrowers pay a high application fee — typically $15 to $35 per $100 borrowed.
- Home equity line of credit (HELOC): If you have equity in your home, you can access it to cover your emergencies. Once your HELOC is approved, you’ll have access to funds immediately and on an as-needed basis. However, unlike a personal loan, HELOCs come with a variable rate of interest, which means your rates could go up or down over time.
- Crowdfunding or borrowing from family and friends: If you have supportive loved ones, don’t be embarrassed to share your financial reality with close friends and family. They might have creative, helpful solutions or be willing to lend you funds to help you meet your needs. Alternatively, using a crowdfunding platform allows more people to chip in what they can. Fees to use crowdfunding platforms range between 5% and 12%.
Hardship loans to avoid
Even when you feel desperate for financial assistance, it’s best to stay away from predatory lenders. Although getting approval is relatively easy, predatory loans come with rates and terms that are very burdensome.
Unfortunately, not all hardship loan lenders have the best interests of borrowers in mind. “Some lenders can use very aggressive rates that can quickly increase the total amount of repayment,” said David Blaylock, a certified financial planner in Austin, Texas.
He emphasizes that borrowers should pay attention to the total amount of interest on the loan and how that rate is calculated. “While repayment terms for hardship loans are typically shorter in nature, beware of any loan where the repayment time is weeks and not months,” he said.
Whenever possible, refrain from these types of loans:
- Car title loans
- No-credit-check loan
- Pawnshop loans
- Payday loans
- Title loans
» MORE: What is predatory lending?
Alternatives to hardship loans
If you apply and are rejected for a hardship loan, or you’d rather not take on the payment associated with a loan, you might still be able to get assistance. There are many resources available through employers, counties and states, and local financial institutions. You can also try any of the following actions:
- Call your creditors: As soon as possible, contact all of your creditors to explain your financial hardship. Don’t wait until your bill is past due; the sooner you make contact, the more willing creditors usually are to work with you. Additionally, utility companies might be able to refer you to local programs that can help cover your bills.
- See which loans can be deferred: Some lenders have special deferment or forbearance options that will temporarily pause your payment responsibilities. Make sure you contact the lender to find out what steps you need to follow.
- Research local assistance programs: Ask your local community center or religious institution what programs are available. Many cities have free grocery events or clothing drives that will help you get the resources you need.
FAQ
Do I need good credit to get a hardship loan?
You don’t necessarily need good credit to get a hardship loan. Having good credit increases your odds of approval and gets you a lower rate, but some lenders have flexible credit score minimums for hardship loans.
What is considered a financial hardship?
Financial hardship is defined as not being able to pay your bills on time due to a lack of funds. This type of hardship can arise from situations including a medical emergency, job loss, car accident or the death of a loved one.
Can I get denied for a hardship loan?
While many lenders offer flexible terms for borrowers facing financial hardship, each one still evaluates risk individually. If you have a long history of unemployment or bad credit, you might be denied. If you are taking out a 401(k) hardship withdrawal, you can be denied if your hardship doesn’t meet the IRS requirements for financial hardship.
Can I get a hardship loan with bad credit?
Yes, some lenders offer hardship loans to borrowers with poor credit, but watch out for predatory lenders. These loans may have lower credit score requirements than traditional personal loans, but they usually come with higher interest rates. Credit unions and online lenders may be more flexible, especially if you can show proof of income or a clear financial need.
What interest rate should I expect on a hardship loan?
Interest rates on hardship loans can vary widely. Some go as high as 36%, especially if you have bad credit. That’s often higher than standard personal loan rates, so it’s important to compare offers and make sure the monthly payments fit your budget.
Are hardship loans worth it?
Yes, a hardship loan can be worth it when the unexpected happens. But before you borrow, check for free resources in your area or ask friends and family if they can help.
If you do need a financial hardship loan, choose a reputable lender offering manageable terms; avoid predatory lenders that have high APRs and require repayment in a short time frame.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- IRS, "Retirement topics - Hardship distributions." Accessed April 26, 2025.