What Are Hardship Loans?

A hardship loan is generally a loan used to cover essential expenses during a period of financial difficulty. This could include a job loss, reduced income or an unexpected emergency.

“Hardship loan” is not one specific type of loan in Canada. The term can refer to different forms of borrowing that provide access to money during a difficult financial period.

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How Do Hardship Loans Work?

A hardship loan generally works like other forms of borrowing.

You apply for a certain amount of money. The lender reviews your application. If approved, you receive the funds and repay them according to the loan agreement.

Depending on the product, you may pay interest and additional fees. Personal loans can also be secured or unsecured.

What Can a Hardship Loan Be Used For?

People may look for hardship loans when they need help paying for an urgent expense.

Examples can include:

• Rent or housing costs

• Groceries

• Utility bills

• Car repairs

• Medical expenses

• Essential household costs

• Expenses after a loss of income

A hardship loan may help with a temporary financial gap. It does not solve an ongoing shortage of income.

Can You Get a Hardship Loan With Bad Credit?

Possibly.

Approval requirements depend on the lender and the type of loan. Your income may be reviewed. Your credit history may also be considered.

Secured loans may sometimes be easier to qualify for because an asset is used as collateral. That also creates additional risk. The lender may be able to take the asset if you cannot make your payments.

Are Hardship Loans Expensive?

They can be.

Always check the interest rate, fees and total amount you will repay. A loan with smaller monthly payments can still cost more overall if the repayment period is longer.

Be especially careful with short-term high cost borrowing. Payday loans can charge up to $14 for every $100 borrowed in provinces with regulated payday lending.

What Should You Check Before Taking a Hardship Loan?

Before borrowing, look at:

• The total amount borrowed

• The interest rate

• Any additional fees

• Your payment amount

• The repayment period

• Whether a credit check is required

• What happens if you miss a payment

Make sure the payment fits into your budget before accepting the loan.

Are There Alternatives to a Hardship Loan?

If the expense is temporary, you may have other options.

You could look at emergency savings or a lower-cost form of credit. You may also be able to contact the company you owe and ask about a payment arrangement.

Government benefits may also be available depending on your situation.