- As impact of COVID-19 pandemic continues to resonate, banks and credit unions have a vital role to play as systemic stabilisers.
- Financial crunch and anxiety are ubiquitous in the current volatile environment and worrisome unemployment numbers have raised concerns for financial stability.
- Low-cost short-term loans may aid in riding through this storm of squeezed incomes and liquidity crunch.
The year of tough sledding has seen novel coronavirus (COVID-19) outbreak wreaking havoc across the globe, causing widespread economic hardships for consumers, policymakers, and businesses. The crushing humanitarian fallout of the crisis has brough forth a potentially equally disruptive economic domino effect.
Worse but true, the path ahead may seem a precarious one, driven by epidemiological ambiguity, shocks to supply and demand metrics, and weak macro fundamentals.
Although economists are hinting towards deep economic recession, there are some encouraging signs on the recovery scenario.
At the back of strict lockdowns and quarantines, stimulus packages, efforts from medical science and what has seemed to global solidarity- few economies have started triumphing the war gradually against the invisible enemy.
While one area of unease remains- managing money in the middle of a global pandemic.
Financial worries, borrowers struggling to pay off credit card debt, market illiquidity, student and home loan defaults, a sobbing gig economy have erupted as prominent adverse financial effects of the health and financial crisis.
So, what can be one’s rescue to the financial worries? Perhaps, COVID Hardship Loans deserve closer attention in this regard.
What Are COVID Hardship Loans?
Simply put, what the US Paycheck Protection Program loans are for businesses, COVID Hardship Loans are for personal needs.
COVID Hardship Loans, as the name suggests are personal loans that can be availed to ease financial “hardship” brought driven COVID-19. These low-cost personal loans are available from several credit unions and along with some banks as well. Interchangeably, the term is expressed as disaster assistance loans or coronavirus relief loans as well.
The primary objective of these loans is to help customers sustain their finances and bridge the gap between income and expenses amid turmoiled times.
Digging Details- Who Qualifies? Are There Any Friendly Features?
Typical qualifiers for COVID Hardship Loans are people who have been laid-off or furloughed and the ones who have experienced loss or reduction in their incomes due to COVID-19.
The loan generally features lower interest rates and deferred repayment options so that the one availing is not required to start paying it back immediately. This makes it a beneficial stopgap when one requires immediate money but may not have necessary means to pay it back in the near-term.
However, banks are also dealing with the new hard-economic reality, adopting stringent loan approval criteria.
COVID Hardship Loans are relatively easy to obtain than other forms of loans as factors like credit worthiness and financial strength may not be adopted in screening the applications. Most probably, this is because they are for essentials and need to be offered to people experiencing immediate cash crunch.
Why Do We Need COVID Hardship Loans?
Given the hard blow to people’s finances amidst COVID-driven economic uncertainty, COVID Hardship Loans may be needed to pay mortgages, bills for essentials as basic as electricity and secure other basic necessities.
Over 40 million Americans filed for unemployment since COVID-19 struck. According to Forbes, in April alone, the number of unemployed workers increased to 23.1 million and unemployment rate rose to 14.7 %, perhaps the highest since the Great Depression.
Unemployment in Australia peaked 7.1% in May, highest in around two decades. Meanwhile, a new study in New Zealand has estimated doubling of unemployment figures during pandemic.
RBNZ has kept the policy rates on hold at 0.25% with continued QE policy, stating faster than expected recovery for the nation. However, bank also highlighted the concern if stimulus packages are sufficient to keep inflating and job numbers within target.
Moreover, for several people, stimulus checks and unemployment compensation may not be enough to cover expenses. This is when the hardship loans come in as a reliable rescue plan.
Besides, some people may be off kilter and not in an ideal position to immediately pay back to institutions or banks, at least till they get back to their jobs and receive regular income.
Versions of COVID Hardship Assistance
Forbes reports that 86 % of credit unions are presenting new loan products as a response to COVID-19, 95 % are presenting loan alterations and 90 % are presenting fee waivers (based on a March 27 survey conducted by the CUNA and State Credit Union Leagues).
Many credit unions and some banks have developed their personally customised versions of the COVID hardship personal loans. In the world’s biggest economy, the US, approximately 80 % of credit unions are reportedly offering some form of new loans to their members (as per Forbes). These have terms of nearly three months, are made in amounts up to about USD 2k to aid borrowers cover short-term expenses and have a low or even 0 % interest rate. Examples include- Christian Financial Credit Union (Michigan), Forum Credit Union (Indiana), Suncoast Credit Union (Florida).
Besides credit unions, some banks are also offering smaller loans with more advantageous terms relative to traditional personal loans as their approach to support communities at this difficult time. Examples include- U.S. Bank, First Citizens Bank, Trustco Bank.
While ANZ has also witnessed banks and financial institutions in personal finance space, offering dedicated hardship loans along with assistance in the form of deferring/reducing loan repayments, consolidating/restricting loans, fees/charges/penalties waiver and moratoriums.
COVID Hardship Loans and Assistance seem to be doing their best in aiding one sail through financial crisis, until income levels and labour market scenario revive.
(Please Note: Currency in USD unless specified otherwise)
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