Farnoosh Torabi
Written by Farnoosh Torabi
Last updated: Nov.01,2021

Six months into the coronavirus pandemic and millions of people are out of work and barely staying above water. Assistance, such as unemployment benefits, payment deferrals, eviction moratoriums and stimulus checks, have all helped, but additional help is necessary. 

The Trump White House and Congress have been at odds of getting another pandemic relief package out, but there are some options available for people who need immediate assistance.

Many financial institutions began offering coronavirus hardship loans, but these loans have their pros and cons. If you’re in dire straits, they may be worth checking out.

What Are Coronavirus Hardship Loans?

The Federal Deposit Insurance Corporation (FDIC) has been encouraging lenders and banks to assist those who the COVID-19 pandemic has hurt. For their part, these institutions have done what they can.

  1. 1. A survey from Prudential and Flexjobs showed that 53% of the more than 1,000 people who took part said they were earning about half or less than half of their pre-COVID-19 pandemic. 

  2. 2. In a survey from NORC (a research institute), 25% reported losing their income and savings. 

No doubt, financial need is great, and it’s not just for people out of work. What benefits can a hardship loan help with?

Coronavirus hardship loans are designed to be short-term personal loans offered to people who have been affected by the pandemic. The requested financial institution will determine how much amount is needed and the interest rate. People with good or great credit can get rates as low as 3%. 

There are some benefits to hardship loans. 

  • When approved, the money is available in your account within a week. 
  • The time to repay the loan varies by institutions but can range from 3 months to 5 years. 

There are some negative aspects to hardship loans. 

  • The amount you can get is typically capped at $5,000.
  • The loan is only meant to be a stopgap to pay off bills and doesn’t address larger financial problems.

How To Apply For The Hardship Loan

If you want to apply for a hardship loan, you need to find out if your financial institution offers assistance. The Credit Union National Association found in its report that 80% of credit unions were offering a pandemic-related loan. This is great news but talk with your lender to learn more and ask questions about the repayment terms and fees. 

If you learn that your financial institution does offer a coronavirus hardship loan, should you submit an application? Consider the following:

These are credit-based loans, and that does not mean everyone who applies is going to be approved. Applicants must show proof that the coronavirus has impacted them financially, and they can still pay the loan back.

You also need to consider your credit score. If there is a need for a hardship loan, you may not have resources that will improve your credit score to pay the debt down. This may be an instance where your money is needed now and time is of the essence. Of course, applying when your credit score is less than ideal could mean a higher interest rate. This would translate to more debt. 

You need to sit down and do some math. Is it right for you?

Look At All Your Financial Choices

Yes, hardship loans are seen as a “quick fix.” However, before you apply for the loan, there may be some other “better” choices to help you during this difficult time.

  1. 1. Home Refinancing 

With interest rates at their lowest since 1971, you may want to consider refinancing your home (if you own one). Again, you need a good credit score to get a maximum return on the option. You could save hundreds of dollars a month if you were to refinance your home.

This option is only ideal if you plan to stay in the home for several years, as it can take that long to see the actual savings. For a short time, you’ll be paying the fees off for the refinance.

  1. 2. Deferment or Better Payment Plan

If more immediate help is necessary, several programs creditors and lenders have developed to help their customers address the economic doubt. If you have yet to talk with your lender about a deferment or payment plan, do so now.

  1. 3. 401(k) 

If you set up a 401(k) plan, you may want to look into using that money to help you get through the hard times. The CARES act included a provision that eased restrictions on how people could access the money in their plan. People could withdraw up to $100,000 without incurring a penalty.

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