Hardship Loans for Bad Credit

Quick Answer: Can You Get a Hardship Loan with Bad Credit?

Yes, there are hardship loans for people with bad credit. Many lenders and loan types rely more on factors other than your credit score, including whether you can offer collateral, how much money you need, and whether you have stable income.

The best way to find out your options is to start asking questions. Find out what loans might work best for you, then check lenders’ rates. Don’t submit a full application during your research phase, though. If a lender does a hard inquiry on your credit, that could drop your score temporarily, and you might not have credit score points to spare right now. 

If you can’t find any bad credit loan options that work, it might be worth looking into debt relief programs, such as credit counseling or debt settlement. 

Why Get a Hardship Loan?

Life can be full of surprises that cost a lot, even with the best of plans. Things like sudden medical bills, losing a job, or natural disasters can be tough and make us feel out of control. When hard times come, one option is to borrow money to help you weather the storm. But borrowing can be difficult and expensive when you have credit score damage. It can be hard to figure out your best option.

Let’s look at the types of loans you might consider when you're going through a tough time. These are sometimes called “hardship loans.” Our goal is to help you make the smartest decision, the one that's best for you. You're not alone, and we're here to help you find a way to get through it.

What Is a Hardship Loan?

A hardship loan is a loan designed to provide fast financial relief when you’re facing tough times like job loss, big medical expenses, or natural disasters. Often, a hardship loan comes with flexible terms, such as deferred payments or lower interest rates. That way, you can better manage essential living expenses and keep a roof over your head and food on the table without stressing out about paying back the loan right away. 

Hardship loans can come in the form of financing like a personal loan or home equity loan, and can serve as a much-needed financial lifeline when life throws you a curveball.

How do you qualify for a hardship loan?

To qualify for a hardship loan, you need to show that you are in financial trouble. You also need to show you can repay the loan once your situation improves. 

While the specific criteria vary by lender, here are the most common requirements:

• Proof of hardship: You may need to provide documentation and evidence of your financial struggles. The exact types of documentation depends on the hardship, and could include a layoff notice, insurance or medical bills, invoices from a funeral home, bank statements, escrow payments, or denial of unemployment. They should show how your income or expenses have been negatively impacted. 

• Credit history: A low credit score doesn’t automatically disqualify you. The minimum credit score depends on the type of hardship loan and the lender. Generally, for a home equity loan or home equity line of credit (HELOC), most lenders want to see a minimum credit score of 620 to 660. Some may require a score of at least 680. The minimum credit score for an unsecured personal loan is typically around 580. 

• Income verification: Once your finances stabilize, you'll likely need to prove you have the means to pay back the loan. This could be through current income, a new job, or another revenue stream. 

• Collateral: With a secured hardship loan—like a home equity loan or secured personal loan—you might need to back up the loan with an asset such as your home or car. These assets serve as collateral, which is a financial safety net for the lender. The downside of a secured hardship loan is that you're betting the asset. If you can’t keep up with payments, you risk losing your collateral.

To qualify, be honest about your hardship. Show that, with temporary support, you can get back on your feet. Every lender has its own criteria and process, so do your homework to find the right fit for your needs.

Hardship Personal Loans

Hardship loans are typically personal loans. You borrow a lump sum, usually with a fixed interest rate, that you pay back over an agreed period in equal monthly installments. The advantage of a personal loan over credit cards for a hardship or emergency is that a loan usually has a firm payoff date and lower fixed-interest rate. Rates for credit card debt tend to be much higher. Also, credit card rates can change.

There are two types of hardship personal loans. The first is an unsecured personal loan. The lender decides how much you can borrow by evaluating your financial status and credit score. Another term for an unsecured personal loan is “signature loan,” meaning your signature on the application is all that’s required. You don’t have to own anything valuable to borrow against.

The second type is a secured personal loan. You must pledge collateral for this financing. You offer something valuable to the lender that they can take if you don’t repay the loan. Depending on what the lender allows, you might borrow against a savings or investment account, jewelry, collectibles, a life insurance policy, or something else. The collateral reduces the risk for the lender. In turn, it could be easier to qualify for a lower interest rate, a larger borrowing limit, and/or a longer term (compared to an unsecured personal loan). But you could lose your collateral if you default on the loan.

Hardship Loan Variations and Alternatives

You may also qualify for other types of loans if you’re facing a temporary hardship. Here are a few possibilities.

Home equity loan

Home equity loans are a way to borrow against your home equity (the difference between your home’s value and the amount you owe on your mortgage). Home equity loans are installment loans. You borrow a lump sum and pay it back over time in equal monthly payments. These payments usually have a fixed interest rate, which means that the rate won't change over the life of the loan.

A home equity loan is a type of mortgage, meaning your property is used as collateral. If you don't repay the loan as agreed, you could lose the home.

Home equity line of credit (HELOC)

A HELOC is a line of credit against your home equity. Like a home equity loan, it’s a mortgage against your home. 

Instead of getting a lump sum upfront, with a HELOC you get the option to borrow, repay, and borrow more as needed, up to your credit limit for several years. You pay interest on the amount you borrow. HELOCs typically have variable interest rates, so the interest rate could change over time.

With a HELOC, there’s a draw period and a repayment period. During the draw period, you can borrow, repay, and borrow again. When that time ends, you enter the repayment period and can’t borrow more. 

Peer-to-peer loan

Peer-to-peer (P2P) lending is a system through which people pool their money to make loans. Sometimes you can qualify for a P2P loan even if traditional lenders turn you down. P2P lending platforms use automated systems and algorithms to evaluate borrowers' creditworthiness, set loan terms, and determine interest rates. P2P loans are typically unsecured, meaning they don't require collateral.

401(k) hardship withdrawal

You may be able to withdraw money from your 401(k) plan if you have an immediate and heavy need. Some situations automatically qualify, such as medical expenses for you, your spouse, or your dependent, or costs you incur to prevent eviction or foreclosure. Check the IRS website for more info.

Most retirement accounts let you start taking money out penalty-free at age 59 and a half. If you take out money before that age, including for a hardship, you could be hit with a 10% penalty, and must pay income tax on the amount you withdraw. A hardship withdrawal is not a loan. You can’t pay it back, so you lose the benefit of growth over time on that money. 

Options to Avoid

Give these borrowing options a miss. 

Payday loan

A payday loan is a short-term, high-cost loan meant to be repaid on your next payday. Payday loans are often for smaller amounts, usually $500 or less. When you take out a payday loan, you may have to authorize the lender to automatically take the money out of your bank account when the loan is due. If you can’t pay it back, you have to renew the loan and pay more loan fees. 

Payday borrowers renew their loans an average of eight times before finally clearing the debt. Payday loans are very expensive, with an APR of 400-1,000%. In comparison, a high credit card interest rate is around 36%, and personal loan rates typically range from 8% to 36%. 

If you’re having a financial crisis, a payday loan is more likely to make it worse than better. Payday loans are considered predatory, meaning the terms are abusive to the borrower.

Title loan

Title loans are short-term loans that use your vehicle as the collateral. In some states, title loan APRs are capped at 36%. In that case, a title loan is comparable to a credit card. In other states, the APR is often around 400%. Rates that high are considered abusive to borrowers. 

The problem with title loans is that if your financial issues don’t get resolved, you could lose your car, which could make it harder to get to work. Most lenders require that you own your vehicle outright to get a title loan, and they hold onto the title until the debt is satisfied. You typically have to provide a duplicate set of keys and sign something authorizing the lender to take possession of your car if you default on the loan. The lender may install a GPS tracking device on your vehicle. 

Debt Relief If You Can’t Get a Loan

Getting relief from your current debts could free up cash in your budget. That could make it easier to pay for necessary expenses and stay caught-up on your other bills. Here are a few ways to get debt relief.

Debt settlement

Debt settlement means negotiating with creditors to accept less than the full amount you owe. They consider it payment in full, and forgive the rest. They might be willing to do this if you’re experiencing hardship. It costs a lot to sue people for debts, and creditors know that negotiating may produce a better financial outcome for them. 

You can settle debts yourself, or hire a professional debt settlement company to help you. If you work with professionals, you pay a fee for each debt they settle.

Deferment or forbearance

Some creditors offer hardship programs in the form of temporary payment relief. The pause could last anywhere from a month to a couple of years. Some lenders continue to charge interest, and some don’t. Deferred payments aren't forgiven. They are added to your loan balance. Some lenders require that you get caught up by a certain deadline (which could be a hardship in itself). Contact your creditors, explain your situation, and find out the details of any hardship programs they offer. 

Debt management plan

A debt management plan is a repayment plan administered by a nonprofit credit counseling agency. It’s designed to fully repay your unsecured debts in three to five years. You make monthly payments to an account you give the credit counseling agency access to so they can distribute the money to your creditors. Debts that can be managed through a debt management plan (DMP) usually include unsecured debts such as credit card debt or medical bills.

When you enroll in a DMP, creditors may agree to reduce or remove certain fees and lower your interest rate to help make the debt more affordable. Even so, if you have a lot of credit card debt, the monthly payments can be high. 

DMPs are a good option to consider if you can afford to fully repay your debts, but need help getting a handle on your finances.

Choosing a Path Forward

Financial hardships happen to everyone, and the best path forward depends on your unique circumstances. Take a breath and take your time as you research your options. It might help to make a spreadsheet for clear comparisons.

Consider the near- and long-term future, including the possibility that you may earn more and get out of debt sooner than expected. Talk to a financial professional or two, and remember that you’re not alone: Many Americans face hardship, but find options for getting back on their feet financially.