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An unexpected financial emergency can be very stressful and worrisome. And without money in savings, you might be wondering how you’re going to get the financial help you need. One option is to take out a loan. However, there are different loans to choose from. You need to be sure you choose the right loan option to suit your needs. Quite often, the answer is financial hardship loans.
Financial hardship loans are a type of loan that can cover unexpected expenses. They differ from other types of loans, such as car loans or small business loans. Instead, they are primarily used to help you pay your bills or some other financial expense. And there are actually a few different types of hardship loans you can apply for.
Sometimes you simply need a cash advance. Other times you may need to pay medical expenses. And other times, you may have an expensive home repair to take care. Regardless of the situation, a financial hardship loan can help.
If you have a 401(k) with your employer, you may be able to borrow some money from it. However, you can only borrow from your 401(k) if the need for the money meets certain criteria. The IRS determines these criteria, which include using the money for:
The IRS also states that you can only withdraw the amount needed to cover a specific expense. A 401(k) financial hardship loan might also come with certain tax penalties. Be sure you’ve explored all other options before choosing this type of loan.
Your employer might offer the option of a 401(k) for any circumstance rather than as a financial hardship loan. If available, this can be a better, low-cost option.
Another type of financial hardship loan is a personal loan. Today, you no longer need to go to a bank to apply for a personal loan. Several online companies offer personal loans in varying amounts. You will most of the time pay back the loan as a fixed amount every month. These types of loans can be a good option because they offer competitive interest rates, and you can use the money however you see fit. However, you should be aware of origination fees and possible prepayment penalties before making a decision.
Another type of financial hardship loan is the payday loan. This type of loan provides you with a cash advance that is repaid from your bank account the next time you get paid. Financial experts recommend avoiding these types of financial hardship loans because they come with many high fees. It is difficult for many to pay back the entire loan plus fees by their next payday. This results in a cycle of borrowing that leads to high debt.
However, if you have no other option, you can check with your local credit union to see if they offer payday loans. Credit unions that offer payday loans often do so at lower costs. There are also cash advance apps you can use for a payday loan. The fees are also often quite low, but so are the amounts you can borrow.
If you suddenly need money for something like a new roof or a new water heater, you can opt for a personal loan. However, you can also try a home equity loan or home equity line of credit. If you have equity in your home, this can be a good, low-cost option. You can also get a cash advance from your credit card issuer, but these often come with high-interest rates.
While some of the loans mentioned above require you to show proof of income, not all of them do. There are a variety of loans you can get if you can still show another source of income. This can include Social Security benefits, unemployment income, retirement benefits, or alimony and child support. You can find out more about the income requirements of each loan by checking the terms and conditions.
Once you know what you need the money for, start by choosing the best type of financial hardship loan. Then, compare different lenders offering that type of loan. Be sure to compare the fees, repayment terms, and interest rates. You’ll also need to be aware of the eligibility requirements to see your chances of loan approval.
Once you’ve picked a particular lender, complete the application process. You may need to submit additional paperwork depending upon the type of loan and lender. Once approved, you will receive your money. Some lenders can have the money to you in as little as a day, while others may take up to a week.
If you are wary about getting a financial hardship loan, you can always ask for financial assistance options. For example, mortgage companies and utility providers are offering different options for those impacted by the pandemic. Some might allow you to skip a payment for a month or two. Others may temporarily lower your rate. If you can get relief from creditors, it may save you from getting a financial hardship loan.