Hardship Loans: What They Are, When to Use Them and What to Watch Out For

Unexpected financial challenges like job loss, medical expenses or urgent repairs require quick access to funds. Hardship loans provide a financing option designed for these situations, but understanding when and how to use them is critical, since you’re taking on debt.

We’ll walk you through what hardship loans are, the typical costs, qualification requirements and alternatives.

What is a hardship loan?

A hardship loan is a type of financing designed to provide fast access to funds during a financial crisis. Commonly used for medical bills, emergency repairs or sudden loss of income, these loans offer a lifeline when other options are unavailable or too slow. They offer fast funding and often accept lower credit scores, but are typically more expensive than a traditional loan.

They can take several forms:

• Personal loans with hardship-specific terms
• Employer-based hardship withdrawals or loans from retirement plans
• Credit union emergency loans
• Peer-to-peer or fintech-backed hardship products

These are not “bad credit” loans, although some may accommodate low scores. They are structured to address urgent needs, not discretionary spending.

Hardship loan vs. “regular” loan

A hardship loan is only meant to cover urgent, unavoidable expenses during a financial crisis. It differs from a regular loan in both purpose and structure.

Regular loans are typically used for planned expenses and require stronger credit, stable income and longer approval times. Hardship loans prioritize speed and accessibility, often accepting lower credit scores and offering quicker funding. Some are tied to events like job loss or natural disasters and may require proof of hardship.

When a hardship loan makes sense

Use hardship loans for emergency expenses, when the circumstance is unavoidable, time-sensitive and you lack sufficient cash or lower-cost financing.

Common scenarios include:

• Medical treatment without insurance coverage
• Job loss with no severance or savings
• Essential home or car repairs required for safety or employment
• Natural disaster recovery

Avoid using hardship loans to:

• Consolidate debt without addressing spending issues
• Cover non-essential upgrades or large purchases, like home remodeling or buying a new car
• Non-essential spending, like a wedding or vacation
• Support ongoing deficits without a recovery plan

Types of hardship loans compared

Who offers hardship loans?

Hardship loans aren’t a product category with a universal label. Which means you’ll need to search based on your profile and goals, not necessarily by a specific name. Common lenders include:

• Credit unions. More lenient on credit and more likely to offer emergency-specific loans.
• Online lenders. Fast, accessible and tech-forward, but watch for origination fees and APR stacking.
• Banks. Typically require stronger credit profiles, but may offer special terms for existing customers.
• Employers. Some offer emergency loan or grant programs through HR, especially large or mission-driven organizations.

Compare lenders offering hardship loans, emergency personal loans or fast cash

How to get a hardship loan

Getting a hardship loan is easier when you know where to look and what you need. Start by checking with your current bank, credit union or employer — they often offer special programs for financial emergencies. You can also explore online lenders that offer personal loans for hardship situations. Here’s how to get started:

1. Determine your needs. Know how much you need to borrow and why.
2. Check with trusted sources. Start with your bank, credit union or employer.
3. Compare online lenders. Look for loans with low rates, no fees and flexible repayment.
4. Review eligibility. Make sure you meet credit, income or employment requirements.
5. Apply and submit documentation. Fill out the application and provide proof of hardship if required.
6. Accept the offer. Review the terms carefully and accept if the loan works for your situation.

Funds can often be deposited as soon as the same or next business day, depending on the lender.

How to qualify for a hardship loan

Requirements vary, but most lenders will look at:

• Credit score. 580 is a common minimum, but some go lower.
• Proof of hardship. Hospital bills, job termination letter, disaster documentation.
• Income. Even in hardship, lenders need repayment assurance.
• Debt-to-income ratio. Keep it under 40% if possible.

If you’re denied:

• Ask for specific reasons
• Consider a co-signer or joint loan if the lender allows
• Look for no-credit-check lenders with verifiable income alternatives
• Check with local nonprofits or CDFIs (Community Development Financial Institutions)

What you’ll pay

Hardship doesn’t mean free. Understand the total cost before signing:

• Interest rates. Can vary from 6% to over 35%, depending on credit and lender.
• Origination fees. 1%–8% is typical. Subtract this from your loan amount to see true proceeds.
• Late payment penalties. May be higher than standard loans. Review the loan agreement closely.
• Prepayment penalties. Less common, but still worth confirming.

Key considerations before taking one

Ask yourself these questions before deciding if a hardship loan is right for you:

• Do you understand the total repayment amount? Ask for an amortization schedule to check the fine details of how much you’ll pay over time.
• Is your hardship short-term or ongoing? Loans work best for fixed emergencies that have an end in sight, not open-ended gaps.
• Do you have a plan to repay without hardship? Avoid using a hardship loan as a stopgap for unsustainable spending.
• What will happen if you miss payments? Understand the collections process and ask about deferment options up front.

Expert insight

"Taking out a hardship loan might make sense when the expense you’re facing is unavoidable and truly urgent. For example, if your car breaks down and it’s the only way you can get to work, then a short-term loan might actually help keep your income flowing. But if you’re borrowing just to keep up with lifestyle habits or to delay dealing with deeper financial problems, you’re probably just stacking another bill on top of the others. I’ve seen people borrow to pay off other loans, then end up juggling interest rates and due dates without actually getting ahead. It feels like solving a problem, but it’s more like pushing it into the next month.

Before someone takes out a hardship loan, they need to pause and really think about what the loan is for and what it will cost in the long run. The interest rate, fees and repayment terms matter more than most people realize. If the loan stretches your budget even thinner in the next few months, it could cause more stress than it solves.

Lenders don’t assess hardship loans the same way they do regular personal loans. They usually understand that the borrower is under financial pressure, so the process might be more lenient when it comes to credit scores or income. But that doesn’t mean they’re handing out money without strings attached. They often charge higher interest rates or tack on more fees because they see the loan as a bigger risk. Some will even ask for proof of the hardship — a medical bill, a termination letter or a past-due notice — to justify the loan. If you’re applying, be ready to explain why you’re in this spot and how you plan to get out of it."

Kevin Marshall

CPA, tax and personal finance expert

Alternatives to hardship loans

Before committing to debt, consider these alternatives:

• Payment plans with providers. Many medical offices, utility companies or landlords may offer flexible payment arrangements if you ask.
• Nonprofit or local assistance. Community organizations may offer grants, food or emergency bull help based on need.
• 0% APR credit cards. Ideal for short-term expenses that you can pay back during the promotional period.
• Cash advance apps. Apps like EarnIn or Current offer small amounts of cash based on your paycheck. Plus, there is no interest or credit check.
• Home equity line of credit. If you own your home, a HELOC may offer a low interest rate on a loan — but your home is on the line.
• Friends or family loans. These loans can be interest-free, but you’ll want to agree on clear repayment terms up front.

Bottom line

A hardship loan can help in a tough moment, but it’s not a fix-all. When used wisely, it fills a short-term gap and helps keep your finances on track. When used without a plan, it can make things worse.

Before you apply, slow down. Look at the terms, compare your options and make sure the loan isn’t only a temporary fix but can help resolve your financial dilemma.

Frequently asked questions

Do hardship loans affect your credit?

Yes. Applying may involve a hard inquiry, and missed payments can damage your score. But repaying on time can help build credit.

Are hardship loans the same as payday loans?

No. Payday loans are high-cost, short-term advances with APRs that can exceed 400%. Hardship loans are typically personal loans with lower rates and fixed terms.

Are there hardship loans for bad credit?

Yes, but options are limited and often come with higher interest rates. Consider lenders like OneMain, Avant or Oportun, which are more flexible with credit profiles.

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Megan B. Shepherd

Editor, Loans & Insurance

Megan B. Shepherd is a personal finance expert and editor for loans and insurance at Finder. Her personal finance expertise has been featured on Forbes, Nasdaq, MediaFeed, Fox News, Time, Reviews.com, and carinsurance.com, adding invaluable information related to personal loans, financial strategies and smart borrowing tactics. Megan graduated from the University of Texas at Dallas with a BS in Business Administration with an entrepreneurial focus. She's worked as a certified financial adviser and has earned certificates of completion from A.D. Banker & Company. See full bio

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Megan B. has written 12 Finder guides across topics including:

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