Apply for a Hardship Loan

Not many people go through life without finding themselves needing more money. There are many institutes available to offer loans for a purpose, such as to buy a house or car. Typically, very few lenders offer funds based solely for hardships or the fact you need more money. However, there are options for getting money during hard times. It may be worth researching how to apply for a hardship loan if you are desperate for money.

Steps

Reorganizing to Avoid Taking Out a Hardship Loan

1. Understand a hardship loan. If you don’t have a rainy day fund, the thought of paying for unexpected medical bills, car or home repair can cause you to feel powerless. In some situations, taking out a hardship loan is the best option for paying these unexpected expenses, but in many situations, people who take out hardship loans cannot pay them back and are forced deeper into debt. Restructuring your expenses to avoid a hardship loan is usually the best option. If you must take out the loan, ensure you can repay it before agreeing to the terms because while a hardship loan of some kind will give you the cash you need fast, you will often have to deal with negative consequences of such loans in the form of:
   • High interest rates
   • Fast repayment times
   • Credit score damage
   • Predatory collection practices if you are unable to pay back the loan
2. Make a budget. Although taking out a loan to cover expenses is necessary in some cases, it is possible that you can make ends meet by reorganizing your current budget to cut out unnecessary expenses. To start budgeting and keeping track of your money, here are a few things you may consider:
   • Tracking your monthly income each month
   • Listing of all of your monthly expenses—usually in the form of fixed expenses for consistent ones (such as rent) and variables expenses for ones that change (such as groceries)
   • Adjusting your variable expenses if you can—eating out less to save money on food, for example, or using public transportation to save on gas
3. Minimize your fixed expenses. If budgeting and cutting down of variable expenses is not giving you enough income, consider cutting down on fixed expenses where you can. For instance, lower your monthly rent payment by moving in with relatives or, if you own a home, consider renting out a room to lower your mortgage payment.
   • Additionally, you can lower expenses such as your phone or cable bill by signing up for a cheaper package through your provider.
   • If you already have student loan repayments as part of your fixed expenses, you can look into deferring payments on the loans due to hardship. You can find more information about deferring student loans at: Defer Student Loans.
4. Make more money. Before taking out a hardship loan, consider attempting to make more money to cover your expenses. Maybe you can work more hours at your current job or get a higher paying job.
   • If you have a skill that you are not currently being paid for, consider doing freelance work or setting up your own business on the side. For example, you could do yard work on the weekends or babysit at night when you are not otherwise working.
5. Meet with a financial advisor. To get more help with your finances, go to a local bank and talk about your finances with a professional. Usually, a financial advisor can point out areas in your spending that you could improve on, and give you some ideas for saving money. At your meeting, you can expect to ask most of the questions and control the direction of the conversation.
   • If you have an account at a certain bank, you can just walk in to any branch of that bank and ask to speak to a financial advisor. If you do not have a bank account, you can still talk to a financial advisor at any bank for free. However, the financial advisor may try to convince you that you should open an account with that bank.
   • To prepare to meet with a financial advisor, write down a list of your monthly income and expenses, and think about your financial goals. For example, do you want to save more money for a large purchase, or do you need to make sure that you can afford your existing expenses.
   • The financial advisor might encourage you to use services offered by the particular bank you are at such as checking or savings accounts, loans, or credit cards. Do not feel pressured to open an account or register for a credit card immediately. Offers will always be in place for longer than one day, so you can take as much time as you need to consider whether the service is right for you.

Applying for Student Loans (for College or Graduate Students)

1. Consider student loans for continuing education. This is the most common form of loan for students who are struggling financially. Of course, it only works if you are enrolled in college or graduate school. The amount of the loan varies and you have some flexibility in choosing an amount. You will not have to pay back the money until you graduate or stop attending school.
   • It is difficult to work full time or even part time while attending school, taking out a student loan will insure that you can focus your full attention on your education while meeting your financial needs.
2. Consider the possible negative consequences of student loans. Having a high student loan balance can negatively affect your credit score and prevent you from making large purchases, such as purchasing a home. Additionally, there is no way to get rid of or reduce your student loan balance after you have received the loans aside from paying them.
   • Unlike other types of loans and other types of debt, there is no relief for borrowers of student loans who have fallen on hard times. While many people who cannot pay their bills consider filing for bankruptcy to discharge (or eliminate) their debts, student loans cannot be discharged in bankruptcy, leaving borrowers with the same payments even after bankruptcy.
   • Depending on the type of education you pursue, there’s also no guarantee in the job market once you complete school, but you must repay the loans regardless.
3. Fill out a FAFSA. To apply for a student loan, you must fill out the Free Application for Federal Student Aid (FAFSA) form online. The FAFSA is free to fill out, and you will be required to disclose information, including your current enrollment status for school, your tax information, and any possible family financial contributions to your education.
   • You can fill out a FAFSA online at: https://fafsa.ed.gov/
4. Learn the status of your application. After filling out the FAFSA, you will be contacted by either your educational institution or the government with approval or denial for the loan, and you will receive instructions for accepting the loan.
   • In the case of financial need, students usually qualify for Direct Subsidized Loans (which do not accrue interest for as long as you remain in school) while students who cannot demonstrate financial needs can still qualify for Direct Unsubsidized Loans (which begin accruing interest as soon as the money is dispersed).

Using Money from Your 401k Account

1. Understand your 401k account. Many people put money from each paycheck toward their retirement savings, most often in the form of a 401k account through their employer. This money accrues over time earning interest without any interest having to be paid on the money until you access it at the time of your retirement. Depending on the circumstances, however, you may have the option to either permanently remove some 401k money or even take a loan from yourself from your 401k account that you repay to the account.
   • You may also be able to borrow against other long-term investment accounts such as a life insurance account.
2. Take money from your 401k account. Employers usually only allow withdrawals from a 401k account for unreimbursed medical expenses, to buy or repair your home, to pay for higher education, to prevent eviction from your home or foreclosure on your mortgage, and to pay for funeral expenses. Additionally, you must also pay taxes on money that you take out of your 401k, and you will be subject to a withdrawal penalty in the amount of 10% of what you take out.
   • Aside from the tax liability and penalty payment, another factor that you must think about when considering a hardship withdrawal is that although you do not have to pay the money back (which will be a pro for some people), you will no longer have the money in the 401k for your retirement, which is what you wanted to save it for in the first place.
   • If you are interested in a hardship withdrawal, contact your employer to discuss whether this is available and what your next step will be.
3. Borrow money from your 401k account. If you do not want to take money from an account and not put it back, you could consider taking a loan from your 401k and paying it back at a later date. The procedure for applying for a loan from your 401k is fairly simple. All you need to do is fill out a form, choose which investments you want to sell, and wait for the cash to be transferred to your account.
   • Employers usually continue to contribute since it is a form of profit-sharing. While you cannot use the employer contribution to repay the loan (need after-tax funds), the employer will continue to fund as long as you remain an employee.
   • To obtain more details about the form that you will need, contact your employer. Your employer should be able to put you in touch with the appropriate people to walk you through the process for your particular 401k.
   • Pros include: Any interest from the loan is paid to yourself (because you borrowed from yourself); the loan application is easy to fill out; the loan is temporary, and won’t permanently affect your retirement savings; and there are no negative credit score repercussions since there is no credit check to borrow.
   • Cons include: If you lose your job or change employers while the loan is still outstanding, the entire balance becomes due within 60 days of leaving your employment. Moreover, you still must pay taxes on the amount you take from the account, and additionally, will pay taxes again on the full amount of your 401k when you withdraw the money for retirement. Finally, the interest that you pay back to yourself is not tax deductible. Usually, with other types of loans including student loans, the interest you pay is tax deductible.

Contacting Someone Your Trust for a Personal Loan

1. Consider who might provide a loan. Some friends and family members may be willing to give you a personal loan at low or even no interest. Always consider the loan a business deal and agree upon all terms of repayment before going through with the loan.
2. Draft a contract. If your friend or family member requests one, you could put the terms of your loan agreement into a contract. The contract should specify how much money you borrowed, and the terms of repayment, including:
   • How long it will take you to repay the loan
   • How much you will pay each month
   • How much interest, if any, you will pay
   • What will happen if you cannot make payments.
   • You can find more information on drafting such a contract at: How to Write a Legal Contract.
3. Sign the contract. Once you have agreed upon the contract, you and the friend should each sign and keep a copy for your records. Remember that borrowing money from family and friends can ruin relationships if the deal is not handled carefully, so obey every stipulation of the contract. If you must break one of the provisions, tell the person as far in advance as you can and include an idea for an amended provision that will get you back on a repayment schedule as soon as possible.
   • Keep in mind that the signed contract is a legal document, and the friend or family member can take you to court over it if you fail to act accordingly.

Taking Advantage of Grants and Scholarships

1. Research grants and scholarships. Some institutions offer grants and scholarships that do not require any repayment. For example, if you are planning on going or returning to school, apply to your institution for merit scholarships, which are given based on academic success and do not require any repayment.
2. Find grants and scholarships that apply to you. Additionally, if you have a special skill or talent, you can look online for grants that are earmarked to help people with your special skill or talent. For example, if you play violin, its possible for you to find a scholarship specifically for someone who plays violin.
   • Additionally, there are other scholarships available specifically for women, minorities, and people with underprivileged backgrounds.
   • There are also many scholarships for people who are the first in their family to attend college.
   • Though scholarships apply to students, grants are not always tied to education. MacArthur Fellows, for instance, receive no-strings-attached fellowships for work in music, film, and much more. You can also find grants for small businesses and other specific types.
   • For more help finding what scholarships are out there, you can use a website such as: https://www.scholarships.com/
3. Apply for as many as you can. Each type of scholarship or grant will have its own individual application process, and many of them are extremely competitive. On the positive side, there’s no limit to how many grants and scholarships you can apply for or even receive, so the more applications you send out, the better.

Borrowing Money from a Credit Card Company

1. Understand a cash advance. You have probably been offered an opportunity get a cash advance through your credit card company. Cash advances are short terms loans from your credit card company. The amount of cash you will be able to get through a case advance depends on your credit limit.
   • For example, if you have a Discover Credit Card with at limit of $1,500, you are eligible for a cash advance of $1,000, assuming you have a balance of $500 or less (so essentially, the cash advance amount cannot exceed your credit limit).
2. Consider the pros. A cash advance is usually easy to get, as anyone who has a credit card that offers the service will qualify. You also do not need to fill out any paperwork or disclose any financial information.
3. Consider the cons. There are fees that may discourage you from taking a cash advance from your credit card company. For instance, to take a cash advance, you usually have to pay a fee that is between 2% and 5% of however much cash you will get. For example, if you get a $500 cash advance with a 5% fee, you will have to pay $25 just to get the cash on top of ATM fees.
   • Additionally, the interest that you will have to pay on a cash advance is usually much higher than the interest rate for regular credit card purchases. Sometimes, the interest rate on a cash advance can be twice the regular interest rate for your card.
   • Not only is the interest used for a cash advance higher than normal, the interest typically starts to build up the day you receive the cash, not the next month like for typical credit card purchases.

Seeking a Payday Loan

1. Understand a payday loan. Payday loan companies offer high-interest loans for people who need small loans fast. In most cases, you only have to prove that you have a job. You can often receive your money very quickly; however, it does have to be paid back when you receive your next paycheck.
2. Consider the negative aspects of payday loans. Interest rates are extremely high on payday loans with some companies charging up to 1409% interest. Failing to pay back the loan in advance can result in high fees in addition to the accrued interest as well. Additionally, the company may have highly intrusive collections practices in you fail to pay the loan back, such as calling employers or family members.
   • Many people consider the very practice of payday loans predatory due to the high fees and interest rates, and some users have fallen into pits of continuously taking out new payday loans in order to repay their previous loans, so you want to be certain you can pay the loan back within the time frame.
3. Apply for a payday loan. To get a payday loan, find a company in your area, and either go to the office to fill out an application or fill it out online. The application may require you to disclose your salary and other financial information.
   • Although it will depend on the company you borrow from, most payday loans will be deposited within twenty-four hours of your application.
4. Repay the loan. While companies vary, many payday loan companies require that you pay the loan back in full at your next payday. Although, you may pay early or renew the loan until a later payday.

Tips

• Borrowing money is not always the answer in times of financial hardship. Look for other ways to get money before taking a loan. Consider a yard sale or pawnshop for items you no longer need. Work overtime or take on small jobs to earn extra cash.

Related Articles

• Defer Student Loans
• Write a Legal Contract
• Write a Hardship Letter for Mortgage Loan Modification
• Calculate Taxes Owed on Hardship Withdrawals
• Survive Financial Hardship in a Marriage
• Help and Support a Friend Through Any Hardship
• Write a Hardship Letter for a Short Sale

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