Sobering statistics on the financial impact of the COVID-19 pandemic keep on coming. The unemployment rate in April rose to 14.7%, likely the highest since the Great Depression, and the number of unemployed workers increased to 23.1 million.
For some, stimulus checks and unemployment compensation may not be enough to cover expenses. One solution could be a coronavirus hardship loan. Unlike Paycheck Protection Program (PPP) loans, which are for businesses only, this type of loan is typically a small-dollar, low-cost personal loan aimed at individuals who are experiencing a reduction in, or loss of, income as a result of the current crisis.
Many credit unions and some banks have developed their own versions of the coronavirus hardship personal loan. Here’s what to know before opting for one.
Credit Unions Are Offering a New Type of Personal Loan
About 80% of credit unions are now offering some form of new loan for their members, according to the Credit Union National Association (CUNA), a trade association that advocates on behalf of credit unions. Unlike traditional banks, credit unions are non-profit cooperatives owned by their members, which means they may be able to offer new financial products—like coronavirus-related loans—more easily and at lower rates than traditional banks.
Credit union personal loans specifically related to the coronavirus pandemic typically have terms of about three months and are made in amounts up to about $2,000 to help borrowers cover short-term expenses, says Jordan van Rijn, senior economist at the CUNA. The loans often have a low or 0% interest rate.
“A lot of these credit unions are waiving origination and prepayment fees or offering no payments or interest for 90 days,” van Rijn says.
- Christian Financial Credit Union (Michigan): Offers an interest-free relief loan to assist members during the pandemic who were affected by job loss or reduced hours. No minimum account balance is required; the only requirement is an existing membership with Christian Financial Credit Union.
- Forum Credit Union (Indiana): Members with less-than-stellar credit can secure a $500 loan for a six-month term at 10.24% APR, and do not need to make payments for 45 days.
- Suncoast Credit Union (Florida): Offering a Lifeline Loan for up to $4,000 at a 4% APR with loan terms up to 60 months and payments deferred for the first 90 days.
Although credit unions require borrowers to become members before accessing their financial products, joining can often be as simple as making a small donation to a supported charity. View the CUNA’s list of state-by-state coronavirus-related assistance available at credit unions on its America’s Credit Unions website.
Some Banks Are Making Coronavirus Hardship Loans, Too
Since early March, with encouragement from the Federal Deposit Insurance Corporation (FDIC), many financial institutions have offered some form of a helping hand to those impacted by COVID-19. Some banks are also offering smaller loans with more favorable terms than a traditional personal loan.
“While specific actions vary by institution and depend on a customer’s individual circumstances, banks across the country are doing what they can to support the communities they serve at this difficult time,” Ian McKendry, spokesperson for the American Bankers Association, wrote in an email to Forbes.
- U.S. Bank: This Minneapolis-based bank with branches in 25 states reduced the price of its small-dollar Simple Loans from $12 to $6 on auto pay and $15 to $6 on manual pay per $100 borrowed.
- First Citizens Bank: With branches in 20 states throughout the Southeast, Southwest and West Coast, this bank offers unsecured personal loans for up to 24 months with a reduced interest rate and no payments required for the first 90 days.
- Trustco Bank: Reduced-rate, short-term personal loans are available from $500 to $5,000 at 4.5% APR for up to 12 months.
The American Bankers Association has a state-by-state list of banks offering pandemic-related help on its website.
Coronavirus Hardship Loans May Be Easier to Get Than Other Types of Relief
A personal loan is only one option for a quick infusion of cash if you need it.
For instance, if you own a home, you may have considered a cash-out refinance, which lets you benefit from an increase in your property value by providing you with a new loan that’s larger than your existing loan. The difference between your original home loan and the new one, tied to your higher property value, is made available to you in cash. But lenders are tightening requirements on cash-out refinances, and are in some cases putting a pause on making home-based loans altogether.
“I think the first thing that’s important for people to realize is banks have to do due diligence, whatever it might look like,” says Chantel Bonneau, a San Diego-based certified financial planner and wealth management advisor at Northwestern Mutual. “If you have no income, they’re not likely going to hand you $50,000.”
Wells Fargo, for example, has stopped processing cash-out refinance loans, according to its website. Along with JP Morgan Chase, Wells Fargo also stopped accepting applications for home equity lines of credit, or HELOCs, as of May 1.
Banks are dealing with a new economic reality, and way of life, just as consumers are.
“People with lots of equity in their home, but no income—the typical bank is not set up for that,” says Rutger van Faassen, vice president of consumer lending at Informa Financial Intelligence, a financial institution research firm. “And then there’s challenges like, ‘How do I verify someone’s income?’ or, ‘How do I send an appraiser [while coronavirus restrictions are in place]?’”
If a home equity loan or HELOC is no longer an option for you, coronavirus hardship loans are smaller and, since they specifically intended to help those who are experiencing a cash crunch, likely easier to get approved for.
According to a March 27 survey conducted by the CUNA and State Credit Union Leagues, 86% of credit unions are offering new loan products as a response to the crisis, 95% are offering loan modifications (such as interest-only payments, loan extensions or reduced or 0% interest on existing loans) and 90% of credit unions are offering fee waivers.
Although it might not be a big chunk of cash like a HELOC might provide, a coronavirus hardship loan could be enough to get you through the next few months of an emergency situation until you can reevaluate your options in the future.
A Coronavirus Hardship Loan Is Still a Loan
Even if the terms of a coronavirus hardship loan seem appealing, it will still have to be repaid. Although there’s a lot of buzz surrounding the potential for PPP loans to be forgiven, those loans are only for small businesses—and they can only be forgiven when at least 75% of the loan proceeds are used to cover employee payroll. A coronavirus hardship loan does not typically have the possibility of forgiveness attached to it.
“Maybe the banks and credit unions are being a little nicer with interest rates,” says Bonneau. “But ultimately…you’ll also have to pay it back one day.”
If you do opt to pursue a coronavirus hardship loan, pay close attention to the terms, including any fees associated with it and the interest rate you’ll pay. Also double-check when any deferment periods end.
Before taking on more debt, assess your budget. Calculate your total monthly income and expenses to make sure you can accommodate a new monthly bill when repayment starts. If you’ve been furloughed or you lost your job, it’s especially important to get clear on how and when you’ll be able to repay the loan, and consider taking out the least amount you need to cover your expenses.