How Does a Coronavirus Hardship Loan Work?

As millions of Americans struggle with the financial effects of the coronavirus, many won’t be able to pay their bills. In response, a growing number of financial institutions — mostly credit unions — are offering coronavirus hardship loans.

These loans can provide a low-cost, mostly short-term way to borrow money until you get back on your feet.

“You need the right financial tools for the right problem,” says Melissa Gopnik, senior vice president at Commonwealth, a nonprofit that helps consumers improve their financial security. “For someone with a short-term, temporary dip in income, this type of loan could be helpful.”

You’ll first want to learn how coronavirus hardship loans work, when to get one and alternatives to consider.

[Read: Best Personal Loans.]

How Does a Hardship Loan Work?

“Hardship loan” is a catchall term for a loan that allows you to borrow money during a financial hardship. In recent months, dozens of lenders have started offering hardship loans to consumers affected by the coronavirus.

Hardship loans tend to come with consumer-friendly features, such as deferred payments and limited-time low interest rates.

With a hardship loan, you’ll take out the loan, use the funds as needed to tide you over and then repay the loan according to the terms.

If you continue to experience financial difficulties and can’t make payments, you will need to discuss options with the lender.

What Is a Coronavirus Hardship Loan?

Coronavirus hardship loans are personal loans available from many credit unions and some banks. They may be advertised under different names, such as disaster assistance loans, coronavirus hardship loans or coronavirus relief loans.

Here’s what you can expect from the typical coronavirus hardship loan:

— It is for people financially affected by the coronavirus.

— It comes with consumer protections, such as deferred payments for 60 to 90 days and a temporary 0% annual percentage rate.

— APRs are relatively low and range from about 3% to 18%.

— Repayment terms are 12 to 36 months.

— Loan amounts are between about $1,500 to $5,000.

The loans are “meant to help customers sustain their finances through a very difficult time,” says Ira Rheingold, executive director at the National Association of Consumer Advocates, an association of attorneys and consumer advocates. “These financial institutions view customers as partners, as a long-term relationship.”

Check whether your bank or credit union offers one of these loans. Most lenders require a credit check, and you must document your financial hardship and show your ability to repay. You’ll receive funds within a few days if you’re approved for a loan and can use them as needed.

[READ: Best Bad Credit Loans. ]

Should You Get a Coronavirus Hardship Loan?

If you’re looking for a hardship loan, it should come from a reputable financial institution and have affordable repayment terms. You should also make sure you can make payments on time.

Start with these steps:

Consider how you’ll repay the loan. Even if you’ve found a good lender and qualify for affordable terms, you should also consider how you’ll use the money and repay the loan.

Rheingold points out that these are one-time loans for problems that might need long-term solutions. “These might get you through the month of May or the month of June,” he says, “but what happens in the next month when there are no jobs for you, or we’re still locked in place?”

A coronavirus hardship loan could be a good option “if you believe that, in three months, you’ll be able to go back to work and have funds to pay this type of loan back,” Rheingold says. Examples would be if you have a job lined up or are waiting for a furlough to end.

Verify the lender. Vet the lender and read the terms carefully before taking out a loan, says Melinda Opperman, president and chief relationship officer at, a nonprofit financial counseling agency.

Some high-risk lenders, such as payday lenders, frequently call their products “hardship loans” and market them to vulnerable consumers, Opperman says.

These loans tend to come with “very high interest rates, short payoff schedules and little thought to whether the borrower has the capacity to repay,” she adds. “‘Quick approval’ and ‘fast cash’ are the kinds of phrases we hear.”

The lender should have a reputation for offering affordable loans and helpful customer service. You can check out the Better Business Bureau and Consumer Financial Protection Bureau’s complaint database.

Also, search for the company online: Check customer reviews and social media accounts. Finally, check with your state’s attorney general to make sure that the lender is registered with the proper state government agencies.

Check whether you qualify. Read the eligibility requirements, or call the lender and explain how you’ve been financially affected by the coronavirus.

Your ability to borrow may come down to your financial situation and the type of lender. A credit union, for example, usually requires borrowers to join before applying for loans.

Understand the loan terms. Check how much you can borrow and how quickly you will get the funds as well as the loan’s APR, repayment term and fees. Also, see whether interest accrues during payment deferral.

All of this information should be clearly written in the loan documents.

Consumer advocates say you should avoid a loan with an APR above 36% and a repayment term of less than six months.

[Read: Best Debt Consolidation Loans.]

Alternatives to Coronavirus Hardship Loans

You may want to look at alternatives to coronavirus hardship loans if you’re not certain that your financial situation will improve soon. A loan could be risky if you miss payments, which can result in late fees and damage to your credit score.

Consider whether one of these alternatives is a better choice:

Ask your employer about hardship grants. Many companies, from large chains such as Costco to smaller businesses, offer hardship grants to support workers during difficult times, Gopnik says.

Typically, the company and the workers contribute to the fund, and workers can apply for cash grants when needed. Grants range from $500 to $5,000, which may be enough to help you through the pandemic, and usually don’t have to be repaid.

If your employer doesn’t offer hardship grants, you could ask about getting an emergency loan that you would repay.

Find community programs. Start by dialing 211 or visiting, which will connect you to information and resources for your state.

Some federal programs could help with paying your bills, and certain national initiatives can connect you with local food banks and grant programs. Gopnik also recommends checking out COVID-19 Mutual Aid USA, which can link you with local support groups.

Your city’s official website may also offer information about local programs for people affected by the coronavirus.

Call your lender. Before borrowing money to pay your bills, check whether your credit card issuers, federal and private student loan lenders, and mortgage lenders can pause those payments.

“Maybe they’ll let you skip a few payments, lower your interest rate or otherwise renegotiate the loan to avoid sinking too far underwater,” Opperman says.

Your utility, internet and cellphone providers may also have their own hardship programs. Reach out about payment options if you’re struggling during the pandemic.

Apply for unemployment. Federal law recently expanded unemployment insurance benefits, which provide cash to eligible out of work people.

New guidelines may allow you to get $600 more per week, skip the usual waiting period and receive 13 extra weeks of coverage if you exhaust your state benefits.

And for the first time, self-employed folks — such as freelance writers and ride-hailing drivers — are eligible for unemployment benefits.

Take out a 401(k) loan. A 401(k) loan allows you to withdraw money from your 401(k) account and pay it back at a later date. The coronavirus rescue package doubles the amount you can tap from your retirement savings: up to 100% of the vested balance or $100,000, whichever is less.

If you’re considering this option, you will need to take out the loan by Dec. 31 and repay it within five years.

Financial advisors say this type of loan should be a last resort, though, because your retirement savings won’t grow until you pay back the loan. Still, some people may need these funds to ride out the pandemic.

More from U.S. News

Can You Get a Loan Without a Job?

How to Protect Your Credit Score During COVID-19

How Can You Avoid Coronavirus Loan Scams?

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