Loans for difficulties related to the coronavirus | The bank rate
As the United States battles the coronavirus pandemic, many consumers face financial hardship. The US unemployment rate is 6.2 percent, with 10 million people unemployed, according to the latest data from the Bureau of Labor Statistics. In response to the uncertainty of the current crisis, some financial institutions have developed distressed coronavirus loans to help consumers.
“A coronavirus hardship loan can help borrowers who have lost their income or jobs due to the pandemic,” says April Lewis-Parks, director of education and corporate communications at Consolidated Credit, a service nonprofit credit counseling. “Some of these loans offer periods of low or even zero interest rates, as well as flexible deferral or repayment plans.”
If you’ve been financially affected by the coronavirus crisis, find out how this relief option works and if distressed loans are right for you.
What is a coronavirus hardship loan?
In March 2020, five federal regulatory agencies officially encouraged financial institutions to develop “responsible dollar loans” for consumers who have been affected by the coronavirus pandemic.
Distressed Coronavirus Loans, a type of personal loan, were created in response by banks and credit unions to help their communities. These loans have the basic features of a standard personal loan, such as a fixed interest rate, an installment structure, and a predefined repayment term.
The main difference, however, is that distressed loans are designed specifically as short-term relief for borrowers affected by the coronavirus pandemic and have more favorable terms but lower loan amounts.
How it works?
Each bank and credit union has different eligibility requirements and processes, but many make it easy to apply for a hardship loan online or over the phone. Applicants will be required to provide personal information, such as a full name, social security number, and income, on the application form.
As with a traditional personal loan, lenders will look at your income, creditworthiness, and ability to repay the loan. If you are approved, you can expect to receive funds quickly, in many cases within two to three days.
Typically, the loan is for a modest amount of around $ 1,000 to $ 5,000, although some institutions offer a higher loan limit. The interest rate and repayment terms offered for difficult loans also vary from institution to institution. However, many credit unions offer members 90-day automatic payment deferrals during this difficult time.
Who does it benefit from?
âA hardship loan may be best for someone who needs around $ 5,000 or less and can pay off their loan in a relatively short period of time,â says Lewis-Parks.
If you’ve experienced a decrease in working hours or unemployment and are confident that you can regain income stability to pay off debt, a coronavirus hardship loan can help cover urgent expenses, like rent. or the grocery store.
Where can I get a coronavirus hardship loan?
There are a few places to find a coronavirus hardship loan. The best place to start is your current financial institution.
If you have a long-standing, positive relationship with your institution, your institution may be more willing to approve your loan application. You can also explore national and local banks, community credit unions, and online lenders to broaden your search.
Some financial institutions offer emergency loans, which can be used as short-term aid if your finances have been affected by the pandemic.
If you want to join a local credit union, you can search the National Credit Union Administration’s credit union locator tool to find one near you. You can also search the American Bankers Association’s list of banks that offer coronavirus relief options.
What are the requirements for a coronavirus hardship loan?
To take out a hardship loan from a credit union, you must be a member. Credit unions have different areas of membership. For example, some credit unions require you to live in a specific city or region, work for a specific employer, or be affiliated with another group or association.
You may also be able to find coronavirus hardship loans at banks and online lenders, although they are less common. As with other loan products, you must meet the lender’s credit criteria and other underwriting requirements. Some financial institutions may also ask you to provide documents on the financial difficulties you have experienced due to the coronavirus pandemic.
Which lenders offer coronavirus assistance to current customers?
Although the severity of the pandemic is easing, with fewer new cases of COVID-19 reported each week, some Americans are still struggling financially. Some financial institutions, including the ones below, still offer coronavirus hardship loans to those in need of short-term funds.
- Solarity Credit Union: The credit union offers its members coronavirus hardship loans of $ 1,000 to $ 5,000 and a 90-day deferral period on the first payment.
- Travis Credit Union: Travis’ Disaster Relief Loan Program offers eligible members up to $ 10,000 in coronavirus hardship loans.
- Capital Good Fund: The Capital Good Fund Crisis Relief Loan provides borrowers in Rhode Island, Florida, Massachusetts, Delaware and Illinois with small emergency loans of $ 300 to $ 1,500.
- OneMain Financial: This lender provides emergency loans at a fixed rate, which can be funded within an hour of closing the loan.
This list is not exhaustive, but it does offer examples of coronavirus hardship loans that different lenders could provide.
Alternatives to a coronavirus hardship loan
A coronavirus hardship loan is just one way to get relief if you have been financially affected by the pandemic.
Traditional personal loans
Many lenders offer traditional personal loans. The funds from this type of consumer loan can be used for almost any immediate purpose, such as rent, groceries, or medical bills. They are usually offered with repayment terms of up to seven years, and borrowing limits are usually higher as well. Some lenders offer senior borrowers up to $ 100,000.
Contact your creditors as soon as possible
If you are having financial difficulty or predict that you will not be able to make a payment, talk to your creditors for repayment assistance. While a hardship loan may be your only choice in some circumstances, avoiding more debt is always a better option.
âDepending on why you need the loan in the first place, try to negotiate your bills or your expenses,â says Brandon Renfro, CFP.
Your existing creditors might have payment relief options, such as short-term deferral, that you can explore during this crisis. You can also work with your lenders to temporarily reduce your payments while regaining your financial stability.
This also extends to other major expenses, such as housing. If you’ve been a reliable tenant and have credibility with your landlord, for example, Renfro suggests negotiating a partial discount on the missed rent.
The bottom line
If the pandemic has affected your financial resources and you need temporary emergency help, a coronavirus hardship loan can help. Its favorable terms and low cost of borrowing could be more affordable than using a high interest credit card or borrowing a standard personal loan at a higher rate.
Remember, a hardship loan is always a loan you have to pay back. âPaying off a loan can be difficult if a new source of income isn’t in someone’s future,â says Lewis-Parks. “People looking to take out these loans probably have other debts (like mortgages and student loans), so those taking hardship loans should know exactly how it will affect their budget.”
Lewis-Parks also warns of predatory lenders who could use deception to exploit vulnerable borrowers in financial need. Borrowers are advised to check their lenders through the Better Business Bureau and regulatory agencies before going ahead with a loan.
Coronavirus Hardship Loans FAQ
What are the right interest rates for a distressed coronavirus loan?
Currently, Coronavirus Hardship Loans offer competitive interest rates compared to other loan products. Some lenders even offer rates as low as 0% APR for qualified borrowers.
How much can you borrow?
Borrowing thresholds differ from lender to lender, but hardship loans typically offer small amounts of around $ 5,000 or less. The amount you are allowed to borrow also depends on your credit score.
Who is eligible for a hardship loan?
Applicants whose credit history demonstrates positive borrowing behavior, such as on-time payments and no defaults or defaults, are eligible for a hardship loan. Banks and credit unions may also have deposit or income requirements that could affect your application.
If you are applying for a coronavirus hardship loan from a credit union, you will need to be a member of the institution.