Not only can you get a loan while on disability, sometimes this kind of funding becomes crucial for a borrower’s financial wellbeing. Such personal loans, often coined “disability loans,” can be useful for bridging the gap before benefits kick in or for financing medically important purchases, like a wheelchair.
However, you may wonder whether a personal loan could impact your disability benefits and what requirements you might need to meet to access cash this way. This disability loan guide answers these personal loan questions and more.
Can You Get a Loan While on Disability?
You can get a loan on disability as long as you have the credit score and income to qualify. The exact requirements vary from lender to lender.
Lenders cannot use your disability as a reason to deny you a loan. The Equal Credit Opportunity Act (ECOA) expressly prohibits lenders from denying loans or charging higher fees because you receive help from a public assistance program.
The ECOA protection extends to all loan types, including mortgages, car loans, credit cards, student loans, small business loans, and personal loans.
What Is a Disability Loan?
While “disability loan” is a common term used throughout the industry, there is technically no such thing. Instead, applicants and lenders use the term to refer to a type of personal loan for which a person applies while waiting for or actively receiving disability benefits from the government.
Often, a disability loan more specifically refers to loans that people take out to:
1. Cover living expenses while waiting for disability benefits to kick in.
2. Pay for medical equipment, like wheelchairs or medication, related to the disability.
In other words, you would put what is known as a personal loan toward expenses that are tied to the disability.
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Who Qualifies for a Disability Loan?
The ECOA protects consumers from being discriminated against by lenders on the basis of race, sex, disability status, and public assistance, such as Social Security Disability Insurance (SSDI). That means lenders cannot deny your personal loan application just because you’re on disability.
A number to note: If you believe a lender is violating the ECOA guidance, you can contact the Consumer Finance Protection Bureau at (855) 411-2372.
As with any loan, you can improve your chances of approval for a personal loan with a good credit score and steady source of income. That said, even borrowers with bad credit or no credit history may be able to get approved for a loan, though it will likely have less favorable terms.
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SSI vs SSDI
As a person with a disability, you may be receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) from the Social Security Administration (SSA) — or maybe both. Knowing which type of disability benefit you receive is important, as loans can impact those benefits differently.
Supplemental Security Income
SSI eligibility is solely based on age, blindness, or disability. Recipients do not need to have contributed to Social Security via taxes on past income. Both adults and children with a qualifying disability and limited income and resources may receive SSI.
SSI benefits typically kick in quickly — the first full month after your disability claim has been accepted. Maximum monthly benefits vary based on factors like marital status and income, but they are generally lower than SSDI.
Social Security Disability Insurance
To be eligible for SSDI, you must meet the SSA’s definition of disability — and you must also have paid Social Security taxes on past earnings.
Recipients may be more likely to need a disability loan when anticipating SSDI benefits because they likely don’t kick in until the sixth full month of disability. (There are exceptions for those with certain conditions, such as ALS, or amyotrophic lateral sclerosis.)
However, the SSDI benefit can be worth the wait because it has a higher potential monthly payout. As of January 2024, the average monthly SSDI payment was $1,537 vs. $698 for SSI.
How Personal Loans Affect Disability Benefits
Knowing whether you receive SSI or SSDI benefits is important if you are considering applying for a personal loan.
• SSI: Your loan doesn’t count as income. That said, if you don’t spend your personal loan in the same month that you receive it, the SSA will count the remaining funds toward your SSI resource limit for the month. The limits are currently $2,000 for an individual and $3,000 for a couple. This could therefore reduce your overall benefit for the next month.
• SSDI: These restrictions do not apply to nor impact your SSDI benefits.
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The SSA Process: What Is a Disability?
To earn either disability benefit from the Social Security Administration, you’ll have to meet its strict definition of “disability.” Here it is in a nutshell:
Your medically determinable physical or mental disability must prevent you from being able to work and must be expected to result in death or last continuously for at least 12 months. Children have separate criteria that they must meet to qualify.
To earn SSDI specifically, the SSA will also determine whether you have enough work credits (i.e., if you’ve made enough tax contributions from past income) to be eligible. The number of work credits can vary depending on your age when the disability began.
If you have enough credits, the SSA will then utilize five questions to determine if you qualify:
• Are you working?
• Is your condition “severe”?
• Is your condition found in the list of disabling conditions?
• Can you do the work you did previously?
• Can you do any other type of work?
Head to the SSA website to learn more about qualifying for disability benefits.
Pros and Cons of Getting a Loan on Disability Benefits
Wondering if taking out a personal loan while waiting for or receiving disability benefits is the right option for you? It can be helpful to weigh the pros and cons before applying:
thumb_upPros of Getting a Loan
• You can get financial assistance to help with bills while waiting for benefits to start paying out.
• Responsibly managing a personal loan can help build your credit score.
thumb_downCons of Getting a Loan
• Receiving a personal loan and not spending all the money within a specific timeframe can impact your SSI benefits.
• Personal loans carry the potential for high interest rates and unfavorable terms, especially if you have a low credit score.
How to Apply for a Disability Loan
On disability and need a loan? Applying for a personal loan on disability benefits should follow the same process as applying for a personal loan under any other circumstances. Typical steps include:
• Check your credit score: Knowing your score before you start looking for lenders can help you know the interest rate and other terms you can expect. It might also guide you to narrow the field of possible lenders.
• Find a lender: Your bank or credit union may offer personal loans, but you can also search online to find personal loans that offer good terms for your specific credit score.
• Compile your info: The application process will typically require some basic info. Having identification, income verification (paystubs or a W-2 form), and proof of address handy can be helpful.
If you’re approved, the lender will work with you to ensure you receive funds as quickly as possible. Some personal loan lenders advertise same-day approval and funding in just a few days.
Disability Loan Alternatives
A disability loan isn’t your only option as you wait for disability benefits to kick in. If you need money while waiting for your SSDI, consider these alternatives:
• Disability insurance: Some employers offer short- and long-term disability insurance as part of their benefit packages. Employees without such benefits or self-employed small business owners can also purchase individual policies through a broker. Either way, this insurance can be extremely helpful should you become disabled.
• Worker’s compensation: If your disability originated from a workplace injury, you may be eligible for compensation through this government program. Benefits vary by state.
• Other government assistance: Disability benefits are just one way the government is set up to help you out in your time of need. You may also be eligible for unemployment benefits, the Supplemental Nutrition Assistance Program (SNAP), or similar benefits that can offer financial assistance for the disabled.
• Family and friends: Family and friends may be willing to offer monetary assistance — or even temporary housing — as you learn to manage a disability.
• Credit cards: It may be tempting to put purchases on credit when a disability occurs or get a cash advance. Keep in mind that credit card debt is high-interest debt, and cash advances typically charge a still higher interest rate than your usual annual percentage rate, or APR. Proceed with caution.
• Payday loans: If you need cash fast, personal payday loans may sound like the answer. But they can have annual interest rates of more than 400%. Protect yourself by staying away from these potentially predatory short-term loans.
The Takeaway
Disability loans are personal loans that can help someone with a disability get by until benefits kick in. The Equal Credit Opportunity Act protects people receiving public assistance from discrimination by lenders. Before applying for a disability loan, it’s important to determine how it might impact your disability benefit eligibility — and to shop around until you find a personal loan with favorable terms.
Are you ready to take out this kind of personal loan? See what SoFi offers.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
What kind of loan can I get on disability?
People who receive disability benefits are eligible for the same kinds of loans as anyone else, including home loans, auto loans, personal loans, and credit cards. Legal protections are in place to help prevent discrimination in this situation. In fact, some people take out personal loans to cover expenses until their Social Security Disability Insurance (SSDI) benefits kick in. Just be sure you understand the impact that a loan could have on Supplemental Security Income, or SSI, benefits.
Can you get loans on disability?
Getting a loan while on disability is possible. The Equality Credit Opportunity Act ensures that people on disability cannot be rejected for any type of loan, including a mortgage, auto loan, credit card, or personal loan based on their disability status.
Can I get a personal loan if I’m on disability?
You can still get a personal loan while receiving disability benefits. Like any other applicant, your approval will depend on your credit score or income. A lender cannot deny a loan based on your disability status. Be aware, however, that a loan could impact your SSI benefits.
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