What To Know About Hardship Loans for Bad Credit

Written By
Julija A.
Updated
July 28,2022

Unexpected expenses can strike anyone. But what should you do if, at that given moment, you don’t have any money saved up? Getting a loan from a bank might seem impossible if you have bad credit. Luckily, there are some options if you need to borrow some money to get you back on your feet. This article will tell you all you need to know about hardship loans for bad credit and how to get one.

What Is a Hardship Loan for Bad Credit? 

A hardship or emergency loan is a type of loan designed for people facing financial difficulties. Hardship loans can be used for a variety of purposes, such as paying medical bills, repairing your home, or covering cost-of-living expenses.

You wouldn’t look for this type of loan if you’re planning to buy an apartment or want to make any other planned purchase; people only take out hardship loans when things get really difficult. Indeed, hardship loans can be a lifesaver for those in need of immediate financial assistance. If you have bad credit, some lenders will agree to lend you money despite your score.

OVERVIEW

Avant offers personal loans to those with bad credit for many purposes, such as unexpected expenses. The origination fee ranges from 1% to 10% of the loan amount. Avant offers next-day funding.

Check Rates
On Bankrate Website
APR
9.95% to 35.99%
MINIMUM CREDIT SCORE
580
LOAN AMOUNTS
$2,000 to $35,000
LOAN TERM
24-26 months
OVERVIEW

BadCreditLoans.com gives out personal and installment loans to consumers all over the USA. This isn’t a typical lender; it integrates peer-to-peer financial networks, traditional lenders, and tribal loans so that consumers can get low rates from lenders and banks.

Check Rates
On Official Website
APR
5.99% to 35.99%
MINIMUM CREDIT SCORE
N/A
LOAN AMOUNTS
$500 to $10,000
LOAN TERM
3 months to 3 years
OVERVIEW

5KFunds connects potential borrowers with lenders. With a network of more than 100 lending partners, 5KFunds offers low fees and flexible terms.

Check Rates
On Official Website
APR
5.99% to 35.99%
MINIMUM CREDIT SCORE
N/A
LOAN AMOUNTS
$1,000 to $35,000
LOAN TERMS
2-72 months
OVERVIEW

As well as personal loans, Upgrade offers tools for monitoring your credit health. The offer includes sending payments straight to creditors for debt consolidation. The funding is fast, and there’s a variety of loan terms on offer.

Check Rates
On Bankrate Website
APR
6.55% to 35.97%
MINIMUM CREDIT SCORE
560
LOAN AMOUNTS
$1,000 to $50,000
LOAN TERM
36-60 months
OVERVIEW

Upstart is a platform that brings borrowers and lenders together by using AI technology. Borrowers here have the flexibility to change their payment dates.

Check Rates
On Bankrate Website
APR
5.40% to 35.99%
MINIMUM CREDIT SCORE
300 or above
LOAN AMOUNTS
$1,000 to $50,000
LOAN TERM
3-5 years
OVERVIEW

LendingPoint offers personal loans and prides itself on helping consumers improve their credit score. You can fund these loans quickly, but you’ll need an annual income of $35,000 to qualify.

Check Rates
On Bankrate Website
APR
7.99% to 35.99%
MINIMUM CREDIT SCORE
N/A
LOAN AMOUNTS
$2,000 to $36,500
LOAN TERM
24-60 months
OVERVIEW

Axos is an online bank that offers various banking products, including lending, as well as business and commercial banking solutions and investments. This bank is best known for its high-yield checking and savings accounts.

Check Rates
On Official Website
APR
7.15% to 17.99%
MINIMUM CREDIT SCORE
700+
LOAN AMOUNTS
$5,000 to $50,000
LOAN TERM
36-72 months
OVERVIEW

Prosper is the first ever peer-to-peer marketplace that offers loans with fixed rates and terms, which can be offered without collateral. It lets individuals and businesses invest in loans and earn.

Check Rates
On Bankrate Website
APR
7.95% to 35.99%
MINIMUM CREDIT SCORE
640
LOAN AMOUNTS
$2,000 to $40,000
LOAN TERM
3 or 5 years

Will a Hardship Loan Affect My Credit Score? 

If you’re in a tough situation and your bad credit prevents you from getting a loan, things can seem pretty grim. While there are options to get a hardship loan even with bad credit, you must be very careful, as your score might drop even lower, especially if you don’t manage to pay the loan amount back on time. 

So, yes, getting a financial hardship loan does affect your credit score.

When you’re getting a loan, there will be hard inquiries, and your score will likely go down. On top of that, the fact that you’re getting another loan expands the amount you owe, which will also add to your credit history. 

Luckily, it’s not all that bad. Your credit score will go up gradually if you stay on top of your one-time monthly payments and handle your finances responsibly. Besides, there are strategies that can help you build your credit score even after you’ve paid off your loan. 

So, after all that, what is considered bad credit? 

Several credit rating companies calculate credit scores based on different criteria, models, and formulas. FICO and VantageScore are the most relevant ones. 

According to FICO, it’s considered bad if your credit score is below 580. If you end up in this range, you are statistically very likely to be delinquent on your loans, and getting loans with such bad credit will be tricky. Moreover, getting approved for various financial services such as mortgages or credit cards is difficult. 

Your credit score depends on a series of factors such as credit mix, credit utilization, payment history, recent inquiries, account history, and debt. 

FICO's credit scores range from poor to exceptional:

  • Exceptional: over 800
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: below 580

Types of Hardship Loans

There are several types of hardship loans. Some of these have higher interest rates and terms, while others can be approved more easily if you have bad credit. We’ll list the most important ones and cover everything you need to know in case you’re in need of financial assistance. 

Personal Loans

Even with a very low credit score, you can still get approved for a personal loan. When you get it, there will be a set period for repayment with a consistent interest rate. The interest rate mainly depends on the loan amount, the loan term, and your credit score. If you opt for a shorter repayment period, the interest rate will typically be lower. 

Typically, you can borrow from $1,000 to $50,000, and sometimes even more. Most personal loans for bad credit are unsecured, allowing you to avoid putting down collateral to borrow money. 

However, if it happens that while applying for an unsecured personal loan you don’t meet the criteria due to your bad score, you can try applying for a secured personal loan. For this, you’ll need collateral. In simple terms, you’ll borrow money and place your car, boat, house, or valuables as a guarantee. If you fail to pay it back, your collateral will be taken away from you. 

Emergency Home Repair Loans

Becoming a homeowner is complicated and extremely costly. Just when you think you have it all figured out, something new pops up and wreaks havoc. You don’t always have large amounts of money saved up, and suddenly you might come home to a flooded living room because of a faulty pipe or some other unexpected malfunction. 

In these situations, you need to act fast, and if your friends and family can’t lend you some money, you might have to rely on emergency home repair loans for poor credit. This is more of a general term that might include several types of different loans rather than one specific type. Your options are: 

  • Credit cards or credit card cash advance. You can rely on your cards if you have a high enough credit limit to cover the damage. 
  • Home equity loan or home equity line of credit. With this loan, you can borrow against the equity in your home, often at a fixed rate. 
  • Personal loan. This might be the quickest and simplest solution, but it’s also probably the most expensive.

Payday Loans 

People take payday loans when they need to borrow relatively small amounts of money, usually around $500. These small loans for bad credit are short-term and are typically very high-cost options. It’s relatively easy to get a payday loan, but you should think twice before deciding on this type of loan. For most of these loans, the payout is scheduled for your next paycheck. 

Those in need will sometimes rush and go with this loan, only to realize that it’s very hard to pay it back and that the fees are very high. Indeed, it’s common to have to take out another loan in order to pay out the initial one, thus entering a cycle of loans that will possibly create more trouble than you had to deal with in the first place. 

To illustrate how expensive this loan is, the costs range from $10 to $30 for every $100 you borrow. If you’re charged $15 for $100 and the term is two weeks, the APR is 391%, which shows just how costly it can be. 

Luckily, there are many alternatives to payday loans, and the two we suggest below could be a better solution than taking a regular payday loan. If you need a loan for bad credit, you should find out more about the following.

Credit unions: You should reach out to your local credit union and see if you can get a payday loan alternative from them. This type of loan is similar to typical payday loans, but it will be far less expensive and easier to repay. 

Cash advance apps: These apps are very convenient, and you can get up to $500 and repay it when you get your paycheck. Most cash advance app options are interest-free, with a fee of up to $14. 

401(k) Hardship Withdrawal

If you’re going through a rough patch and can prove that you’re in heavy financial need, there’s the option to borrow some money from your workplace retirement account and pay it back with interest. If you plan to get loans with bad credit using 401(k) hardship withdrawal, you’ll need to know a bit about the process. 

This type of loan is called a 401(k) loan, and the greatest thing about it is that the interest and the payment amounts will go back to your account. Typically, this loan is taken out for funeral expenses, repairs, medical costs, and tuition fees. 

It’s good to know that the interest rate can change; it’s typically one or two points above the rate you’d get from a bank. The bank's rate is called the prime rate and can change over time, so in that sense, if the bank’s rate is 5.2%, your 401(k) loan interest rate would typically range from 6.2% to 7.2%.

Depending on your employer, different terms may apply, so you’ll have to check the limits and how many loans you’re allowed to take. As such, it’s always wise to go over any specifics before deciding on this type of loan. 

Medical Loans

Medical emergencies are one of the primary reasons for financial hardship, meaning they usually occur unexpectedly and can lead to extremely high bills. 

There are certain actions you can take to reduce these costs, such as contacting your healthcare provider and asking for a discount. In some cases, you may be eligible for a payment plan that fits your budget. The loans are usually interest-free if you manage to pay back the money on time. However, if you don’t manage to do so, you’ll be faced with interest on the balance. 

How To Apply for a Hardship Loan 

Before applying, it’s wise to check your credit score and work out whether this loan will lower it even more. Try your best to compare lenders to see which one offers the best funding time, repayment terms, and loan amount, and how much it will all cost you. 

When you finally decide to apply for a loan with bad credit, you’ll need to provide information such as your date of birth, address, Social Security number, details about your income, and the type of funding you need. You’ll also need to specify the purpose and the amount for the loan. 

In order to find out whether you qualify for the loan, you’ll submit a preliminary application and the lender will perform a soft credit check. This won’t affect your credit score. That’s why it’s best to get prequalified with several lenders and see who’s willing to accept your application. However, after you find out that you qualify and accept the terms, a hard credit inquiry is inevitable, and this will affect your credit score. Often, additional documents may be required. 

You’ll receive the funds as you initially requested them. They can be deposited to your checking account, or can be sent directly to your creditors. 

Exploring Other Options

While money loans for bad credit can help you get out of a difficult situation, there are some serious drawbacks. These include the risk of affecting your credit score even more and the fact that such loans can be very costly.

 If you decide that a hardship loan is not the best idea, you can always ask your employer for a paycheck advance or get a cash advance from your credit card issuer. Other than that, turning to your friends and family can be a much safer path, as you won’t have to deal with high interest rates and rigid bank rules. 

Conclusion

A hardship loan for bad credit can be a great way to cover urgent expenses, but it’s important to be aware of the risks involved before signing any contract. You can choose from multiple lenders, but make sure to weigh up all your options and pick the one that’s best for you in order to avoid any additional financial trouble.

FAQ

What qualifies for a hardship loan?

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Typically, you’ll qualify for hardship loans for bad credit if you have medical expenses or need funds to prevent eviction. Burial expenses also qualify, as do tuition fees of up to 12 months.

Which loan is easiest to qualify for?

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Some of the easiest loans to qualify for are payday loans, emergency loans, and bad-credit or no-credit-check loans. Unfortunately, these are also usually the most expensive.

Can I get a personal loan with a credit score of 500?

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The answer is yes. You should consider secured personal loans if your credit score is this low; if you want an unsecured personal loan, you’ll need a co-signer.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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