As we enter the second year of the coronavirus pandemic, many people continue to face financial hardship. The unemployment rate in the United States was 5.8% 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 have developed coronavirus hardship loans to help those struggling to pay their expenses.
If you’ve been financially affected by the coronavirus crisis, find out how this relief option works and if hardship loans are right for you.
4 Basics of Coronavirus Difficulty 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:
- It is a kind 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 affected by the pandemic.
- They come in the form of small loans. The loan is usually for a small amount of around $ 1,000 to $ 5,000. However, some financial institutions offer a higher loan limit.
- They come with little or no interest. The interest rate and repayment terms vary by lender, but coronavirus hardship loans typically have lower rates than other personal loans.
- They are generally available from 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 almost any purpose. You can usually use the money from a coronavirus hardship loan in the same way you could use an emergency loan. This includes living expenses such as rent, groceries, and gasoline for your car. Loans can also be used to cover expenses such as medical bills or utility bills.
Coronavirus-related hardship loan vs traditional personal loan
Since a coronavirus hardship loan is one type of personal loan, many of the same rules and characteristics apply to both. Both are installment loans that require you to repay the money you borrow, along with applicable interest, within an agreed time frame.
Here is more about the differences between coronavirus hardship loans and traditional personal loans and how they are similar:
- Both are versatile. While both have great flexibility on how you use the money, there are some restrictions. In general, you cannot use a personal loan for business purposes or to finance higher education.
- Hardship loans generally have lower rates. Because they are aimed at those in need, business hardship loans charge low or no interest for qualified borrowers.
- Traditional loans have higher loan amounts. They often provide up to $ 40,000, and some lenders lend up to $ 100,000 to senior borrowers. Difficult loans generally offer up to $ 5,000, which makes them less useful for large expenses.
- Traditional loans can have longer terms. They tend to offer several term options of up to five or even seven years. Difficult loans typically give one to three years to pay off, and some lenders only offer one loan term.
- Hardship loans may have a deferral period. Some lenders allow a 90-day period during which you don’t have to make a loan repayment. Typically, however, interest will start accruing from the day your loan funds are disbursed.
Where can I apply for a special loan?
Many credit unions, as well as some banks and online lenders, offer loans for coronavirus-related hardship. If you are applying through a credit union, you will need to be a member of the institution. The best place to start is with a financial institution that you already have a relationship with, as this could increase the chances that you will be approved for a hardship loan.
You can usually apply online or by phone. As with traditional personal loans, the lender will look at your application, income, credit, and ability to repay the loan. If you are approved, you can expect to receive funds quickly, in many cases within two to three days.
How to qualify
While loan requirements and the application process depend on the lender, here’s what you need to know about applying for a coronavirus hardship loan:
- You will need to show proof of financial hardship and you may be asked to provide supporting documents and report your income.
- The amount and duration of the loan for which you are eligible depends on your credit score and your history.
- You will need to provide personal information such as your name, address, and social security number.
To get a tough loan, research loan amounts, interest rates, and terms available from multiple lenders. If you are interested in joining a credit union, use the Credit union locator tool to find one near you. You can also search the American Bankers Association listing banks that offer coronavirus relief options.
Some lenders may require proof that you have experienced financial hardship due to the coronavirus pandemic, so make sure you have your tax returns or proof that you are unable to pay your rent or utility bills.
Coronavirus Hardship Loan FAQs
What are the right interest rates for a coronavirus hardship loan?
Currently, Coronavirus Hardship Loans offer competitive interest rates compared to other loan products. Some lenders even offer rates as low as 0% APR for qualified borrowers.
How much can you borrow?
Borrowing thresholds differ from lender to lender, but tough loans typically offer small amounts of around $ 5,000 or less. The amount you are allowed to borrow also depends on your creditworthiness.
Who is entitled to a hardship loan?
Applicants with a credit history that demonstrates strong financial habits and positive borrowing behavior, such as on-time payments and no defaults or defaults, are eligible for a hardship loan. Banks and credit unions may also have deposit or income requirements that affect your eligibility. If you are applying for a coronavirus hardship loan through a credit union, you will need to be a member of the institution.