1- Your understanding is correct.
2- You don’t have to be in extreme hardship to use this method. Basically there are two solutions here. One is what is called istinqaadh. You make the niyyah, when collecting the loan, that you are salvaging the money of a kafir. So the money you take is not a loan, it’s basically money you are salvaging. Then the monthly payments you make, you do so with the intention that either you are giving them a gift or because the law requires you to do so. So even if you sign on paper, your intention is not not seek a loan. It’s to claim the money, since Ayatollah Sistani says in this case you can take the money with the intention of salvaging it. There are other workarounds too.
3- One does not have to be in hardship to seek some of these workarounds. I recommend seeing this lecture: