Loans in case of difficulty: what is it?

Common Types of Financial Hardship Loans

Although hardship loans come in a variety of forms, each can be used to cover unavoidable expenses. But remember that not all options will suit your situation. Consider the pros and cons of each to choose the best one for you.

Unsecured Personal Hardship Loans

An unsecured hardship loan is a type of personal loan which does not require a guarantee. Instead, lenders will determine how much you can borrow by evaluating your credit score and financial situation. If you have poor credit, you may find it difficult to qualify for a difficult unsecured personal loan, as most lenders have strict requirements.


Using an unsecured personal loan during a difficult time can have several advantages. The first is that you don’t need a valuable item to use as collateral. You also won’t have to worry about the lender repossessing any collateral if you fail to repay the loan.

The inconvenients

Like any type of financing, unsecured loans also have some disadvantages. Since you don’t need collateral to secure the loan, your lender will take on more risk. And the more risk the lender is exposed to, the higher your interest rate and annual percentage rate (APR). This option could therefore be more expensive than the alternatives.

Secured Personal Hardship Loans

Unlike an unsecured personal loan, a secured loan requires some form of collateral. As a result, most lenders will have less stringent qualification guidelines, which will likely make it easier for borrowers with low credit ratings to get approved.


The main advantages of a secured personal loan are its lower interest rates, longer terms and larger loan amounts. These benefits are possible because secured loans help mitigate some of the lender’s risk, as mentioned earlier.

The inconvenients

On the other hand, using collateral means that the lender can claim your property as their own and sell it to recover their losses if you cannot make the payments. Simply put, a secured financial hardship loan can expose you to more risk than an unsecured loan.

Home Equity Loans

You may have heard of home equity loans used to fund a home improvement project, but did you know you can also use them for emergencies? If you own your home and have significant equity, you can convert some of it into cash if you’re in dire straits.


Home equity loans offer fixed interest rates that are generally lower than personal loans. Home equity loans also use longer loan terms, which means paying off the loan could be easier. The more time you have to repay what you have borrowed, the lower the monthly payments will be.

The inconvenients

This type of loan could unfortunately mean a lot of debt. A second payment can be difficult to manage if you’re already struggling to pay your mortgage. Also, home equity loans use your home as collateral. So if you default, you could lose your home to foreclosure.

401(k) Hardship Withdrawal

Depending on your situation, you may be able to take out a short-term loan from your 401(k) retirement plan. Most employers offer this option for specific purposes, such as:

  • Repair a primary residence
  • Avoid seizure or eviction
  • Reimbursement of eligible medical bills
  • Financing a university degree
  • Support for funeral expenses

Before choosing this option, discuss your situation with your plan administrator to ensure that you meet the eligibility criteria.


Borrowing from your retirement account could help you avoid taking out high-interest loans or racking up credit card debt. Plus, you don’t need to meet any lender’s requirements or have your credit history checked to access the funds.

The inconvenients

You may be taken to pay a penalty or taxes if you withdraw from your 401(k). This option could also hurt your future retirement plans if you don’t repay what you’ve withdrawn quickly enough.

Alternative payday loans

Payday loans are notorious for their predatory lending practices and can cause a vicious cycle of debt. Fortunately, many credit unions and online lenders offer alternative payday loans (sometimes called PALs). These loans come with short terms, typically one year or less, and low borrowing limits.


You can use a PAL to quickly cover a last-minute bill without applying for a loan from a payday lender. Also, this type of hardship loan might be more affordable than an unsecured personal loan.

The inconvenients

The short amount of time you have to repay the borrowed amount means that your monthly loan payments could be higher than expected. APRs for PALs can also be extremely high, especially compared to home equity loans or secured personal loans.

Peer-to-peer lending

Over the past decade, peer-to-peer lending platforms have grown in popularity due to their accessibility. A peer-to-peer (P2P) loan is similar to borrowing money from a family member or friend, except the people lending you money can be anyone using the platform.


P2P loans generally use low interest rates to ensure affordability. Borrowers with little or no credit can also use this option as the requirements are more flexible than with a traditional personal loan. Finally, some P2P lenders may require investors to meet specific criteria before they can lend money to borrowers, which helps promote user safety.

The inconvenients

Just because you have access to a P2P lending platform doesn’t mean you’ll be able to get enough funds to cover the cost of an emergency. And, if you default on a peer-to-peer loan, you could hurt your credit score, just like with a traditional installment loan. It should also be noted that some platforms may charge high service fees for any loan you take out.

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