Entering the second year of the coronavirus pandemic, many people continue to face financial difficulties. The US unemployment rate was 5.8 percent in May, with 9.3 million people unemployed, according to the Bureau of Labor Statistics. In response to the uncertainty of the pandemic, several financial institutions are developing coronavirus distress loans to help those who are struggling to pay their expenses.
If you have been financially impacted by the coronavirus crisis, find out how these relief options work and whether hard loans are a good fit for your situation.
4 basic coronavirus difficulties
A coronavirus distress loan can provide much-needed financial assistance if you lose all or part of your income. Before you apply, here's what you need to know about them:
1. They are a type of personal loan. Coronavirus hardship loans are short-term personal loans designed by banks and credit unions for those who have been financially impacted by the pandemic.
2. They come in small dollar loans. These loans are generally for small amounts of around $1,000 to $5,000. However, some financial institutions offer higher loan limits.
3. They come with low or zero interest rates. Interest rates and repayment terms vary by lender, but coronavirus distress loans usually have lower rates than other personal loans.
4. They are generally available at credit unions. While some banks and online lenders also offer this form of waiver, it is not uncommon.
Common uses of coronavirus hardship loans
Like other types of personal loans, coronavirus distress loans can be used for almost any purpose. You can usually use money from a coronavirus distress loan in the same way you would use an emergency loan. That includes living expenses such as rent, groceries and gas for your car. Loans can also be used to cover expenses such as medical or utility bills.
Corona virus hardship loans vs. traditional personal loan
Since coronavirus distress loans are a type of personal loan, many of the same rules and features apply to both. Both are installment loans that require you to repay the money you borrowed — along with any applicable interest — within an agreed period of time.
Here's more about the differences between coronavirus distress loans and traditional personal loans, and their similarities:
1. Both are versatile. While both have great flexibility in how you use your money, there are some limitations. In general, you cannot use personal loans for business purposes or to fund higher education.
2. Difficulty loans generally have lower rates. Because it is aimed at people in need, trouble loans charge low interest rates or even 0 for eligible borrowers.
3. Traditional loans have higher loan amounts. They often provide as much as $40,000, and some lenders lend prime borrowers up to $100,000. Difficulty loans typically offer up to $5,000, making them less useful for big ticket fees.
4. Traditional loans may have longer terms. They tend to offer some options with terms of up to five or even seven years. Difficulty loans typically provide one to three years for repayment, and some lenders only offer one loan term.
5. Difficult loans may have a deferral period. Some lenders allow a 90-day period when you don't need to make loan payments. However, usually, interest will start to accrue from the time your loan funds are disbursed.
Where can I apply for a trouble loan?
Many credit unions, and some banks and online lenders, are providing coronavirus hardship loans. If you apply through a credit union, you must be a member of that institution. The best place to start is a financial institution that you already have a relationship with as it can increase your chances of getting approved for a difficult loan.
You can usually apply either online or over the phone. Like a traditional personal loan, the lender will review your application, income, credit and ability to repay the loan. If you are approved, you can expect to receive funds quickly, within two to three days in most cases.
How to qualify?
While the loan terms and application process depend on the lender, here's what you need to know about applying for a coronavirus hardship loan:
You must show evidence of financial difficulties, and you may be asked to provide supporting documentation and report