Taking On a New Credit Card or Personal Loan During a Crisis

In April 2020, around 23 million Americans -- or 14.7.5% of the labor force -- filed for unemployment benefits due to the fallout from COVID-19.

While some people are turning to their emergency funds to cover expenses during this pandemic, it’s not an option for everyone -- especially now. More than 40% of surveyed Americans say they would struggle to cover an emergency expense of $250, according to a poll by nonprofit news organization Marketplace. 

If your income sources and bank accounts have run dry, if you don’t have a savings account to tap, and you have nowhere else to turn, taking on a new credit card or personal loan may seem like an easy solution. However, a decision like this could end up negatively impacting your financial situation, and the effects -- such as a lower credit score or high interest payments -- might last much longer than your financial emergency. (For more information about personal loans, check out the OppU article "What is a Personal Loan?")

Before you decide whether or not to sign up for a new credit card or loan during this time, here are some factors to consider.

Determine why you need the money

Before moving forward with a credit card or loan application, stop to determine why you need the money in the first place. Figure out if your need or want is important enough to take a chance. 

“You should only apply for a credit card at this time if that card helps you achieve a specific financial goal,” says Steve Dashiell, a credit card expert at Finder. “If you’re currently furloughed and need to float your finances, a 0% APR or balance transfer credit card can help you make ends meet while avoiding interest. In this case, applying for this type of credit card can prove preferable to other methods of emergency funding like cash advances.”

Weigh the risks

Even though we’re in the midst of a crisis, the same basic principles of taking on a new credit card or loan haven’t changed, says Brandon Neth, a credit card and travel rewards expert at FinanceBuzz.

You still need to ask yourself if it makes sense for your current financial state. Can you pay it back? Can you afford the payments? Will you have a job later this year? These questions may be a bit harder to answer right now, but they’re still at the core of this decision.

Neth says if you answered yes to those questions and decided the risk/reward makes sense, then you could apply for a loan or credit card.

Interest rates are hovering around historic lows. Credit cards are still offering amazing signup bonuses and banks are still lending. I personally believe we will see a decrease in new loans and lines of credit if the effects of COVID-19 continue to worsen, so now may be a great time to look into these financial products.

Applying for a loan or credit card without a job

If you were one of the millions of Americans who recently lost a job, you may be worried about your eligibility for a loan or credit card. Not having a source of income can certainly make it harder to get a loan through various financial institutions, as they may require assurance that you can make your monthly payments on time.

“A job loss means that you won’t be able to repay your loan on time,” says Matt Woodley, founder of CreditInformative.com. “ Your chances of getting a loan or new credit card will be much lower. Most banks and other lenders are more cautious than ever in terms of loan issuance.”

However, some banks may be willing to work with you, as long as you have a source of income like unemployment coming in, according to Anna Serio, a loans expert at Finder.

“But in some cases, you might not even need that,” she says. “Several banks and credit unions are offering customers in good standing low-interest or interest-free loans with deferred payments for the first 45 or 90 days. If you’re self-employed and lost work due to the coronavirus, you might be eligible for an SBA Paycheck Protection or disaster loan.” 

Other options for staying afloat

You may be averse to getting any type of loan or credit card. Thankfully, there are other options.

Serio says you should talk to your bank and creditors about what financial assistance programs they’re offering, since many provide hardship assistance on a case-by-case basis. You may be able to negotiate short-term repayment terms from certain lenders and student loan providers until you are back on your feet. Also, you should investigate government assistance or other funding programs that are helping to provide sources of income to workers in certain industries.

The stimulus package just expanded unemployment insurance, relaxed retirement withdrawal and borrowing restrictions, and automatically deferred federal loan payments. And state and local governments also are continually expanding the assistance programs on a daily basis.

You could also find a side hustle on sites like Upwork and FlexJobs. 

“This isn’t for everyone, but many people have a second gig or a side hustle that brings in a few hundred (or even thousand) dollars in extra income each month,” Neth says. 

He also recommends cutting down on expenses by evaluating your needs versus your wants. You could see what expenses are unnecessary -- perhaps a subscription box or streaming service that you don’t really need -- and stop those services for now. “Ideally you’ll do both -- earn more and spend less,” Neth says.

Another option -- although it may not be ideal -- is to ask a family member for help. While it may not be comfortable, borrowing money from family doesn’t require a credit check and you may be able to negotiate reasonable repayment terms that are comfortable for both parties.

Get creative

There are many ways to ensure you’re financially stable during this time. Even if it seems like you don’t have a way out, you can keep researching and figure out good solutions to get you through this.

“If you're struggling financially, get creative,” Neth says. “Reach out to your networks if possible. With access to the Internet, there are tons of ideas to spark someone’s creative juices. Hustle and push through it. You can do it.”