What Are Hardship Loans & How Do They Work?

Q: Is a hardship loan hard to get?

A hardship loan may be easier to get than traditional loans, especially from nonprofit organizations, employers, or government programs. However, approval still depends on factors like income, credit history, and proof of financial hardship. Some lenders offer more lenient criteria, but terms can vary widely depending on the loan source.

Q: What do I need to qualify for a financial hardship loan?

To qualify for a financial hardship loan, you typically need to demonstrate a significant and unexpected financial need, such as job loss, medical emergency, or natural disaster. Lenders may also consider your income, credit history, and ability to repay. Documentation supporting your hardship is usually required during the application process.

Q: Do I have to pay back a hardship loan?

Yes, you typically have to repay a hardship loan as part of the loan agreement. This includes payments toward principal, interest charges, and fees that may apply.

Sulaiman Abdur-RahmanUpdated May 23, 2025

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Unexpected financial challenges can strike at any time, leaving individuals searching for fast and flexible solutions. Hardship loans are designed to provide temporary relief during difficult periods such as job loss, medical emergencies, or natural disasters. Keep reading to learn what hardship loans are, how they work, and who may qualify.

What Is a Hardship Loan?

A hardship loan is a type of financing intended to help individuals cover urgent expenses during times of financial distress. These loans are typically used in situations such as sudden job loss, medical emergencies, unexpected home or car repairs, or natural disasters. Hardship loans can come from various sources, including banks, credit unions, online lenders, or even employer-sponsored programs. Some government and nonprofit organizations may also offer emergency assistance loans or grants, often with more favorable terms than traditional loans.A hardship loan is not your typical consumer loan — it’s financing that may be available to you in times of hardship when other financing may not be available.Recommended: Emergency Small Business Loans

What Can a Hardship Loan Be Used For?

A hardship loan may be used for the following purposes:

Working capital
Continuation of health care benefits
Rent
Utilities
Fixed debt payments

What Are the Repayment Options for a Hardship Loan?

Repayment options for a hardship loan can vary depending on the lender and the borrower's financial situation, but they typically include fixed monthly payments over a set term, income-based repayment plans, or deferred payments during a grace period. Some lenders may offer more flexible terms, such as temporarily reduced payments or extended loan periods, to help ease the financial burden during a time of hardship. Additionally, nonprofit or employer-sponsored hardship loan programs may offer interest-free options or even loan forgiveness in certain cases, so it's important to review the terms carefully and communicate with the lender about any repayment challenges.Recommended: Guide to Large Personal Loans

What Are Alternatives to a Hardship Loan?

Below we highlight some alternatives to a financial hardship loan:

Personal Loans

Economic hardship is not required to get a personal loan, but personal loans can be used to cover major expenses during times of hardship. Borrowers with good or bad credit may qualify for emergency personal loans. There are a variety of personal loan uses, including paying for emergency repairs to your home or car. Personal loans may be an option if you’re facing unforeseen struggles. For example, you may consider getting an emergency loan if you need funding to pay for medical bills. Personal loans can have repayment terms ranging from 12 months to seven years, and some lenders may offer longer terms.You may also consider getting a personal loan with a cosigner. A cosigner accepts the financial responsibility of repaying a loan if the primary borrower fails to make a required payment.

Borrow Against Your Life Insurance Policy

You may borrow or withdraw funds from a life insurance policy if you have sufficient cash value in a life insurance plan. Taking a personal loan against your life insurance policy has certain pros and cons.Borrowing from the cash value of your life insurance policy doesn’t require a hard credit check, but you risk losing your life insurance policy if you fail to repay the loan.

401(k) Loan vs 401(k) Withdrawal

Some employees with a 401(k) retirement plan may have the option to take out a 401(k) loan or a 401(k) withdrawal. A 401(k) withdrawal is not the same thing as a 401(k) loan. A 401(k) loan is borrowed against your retirement plan, whereas a 401(k) withdrawal permanently removes money from your retirement savings.Employees who take out a 401(k) loan are expected to repay the loan in full, usually within five years. Eligible employees may borrow up to $50,000 from a low-interest 401(k) loan, and the interest is paid back to yourself (minus fees potentially).One of the downsides to a 401(k) loan is the money borrowed is taken out of the market and will not participate in any market gains, which will adversely affect the growth of the retirement funds.Meanwhile, a 401(k) withdrawal — also known as a hardship distribution — is typically subject to income taxation and penalties if you’re under the age of 59½. You cannot repay a 401(k) withdrawal.

The Takeaway

Hardship loans may come in handy if you’ve experienced a sudden job loss or a medical emergency. Exploring other funding options may be right for you if you’re not eligible for a hardship loan.If you need a personal loan, Lantern by SoFi could help. Just fill out a simple form and view personal loan offers from different lenders.Compare personal loan rates and apply in minutes.

Frequently Asked Questions

Is a hardship loan hard to get?

What do I need to qualify for a financial hardship loan?

Do I have to pay back a hardship loan?

Photo credit: iStock/Hispanolistic

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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