Loans for People on Disability and How They Work

People on disability are less likely to be able to manage their living costs [1]. According to the Centers for Disease Control and Prevention (CDC), more than 1 in 4 Americans receive disability benefits, and the majority of them rely solely on their income from the public assistance program [1]. As a result, they often need additional financing to manage their everyday expenses and medical bills. In such situations, loans for disabled people can help.

However, lenders don’t treat this type of income the same. It’s important to review all the options you have to choose the one with suitable terms. In this article, we’ll explore loan products available to low-income individuals on disability, reveal their pros and cons, and provide safer alternatives to consider first.

Types of Disability Payments

Disability payments issued by the Social Security Administration (SSA) can be divided into two categories: need-based (SSI) or work-based (SSDI). Both options provide benefits to people with physical or mental impairment that meet the following criteria:

• Prevent them from any substantial gainful activity.
• Has lasted or is expected to last for at least 12 months or lead to death.

However, these types of disability payments have several key differences:

Can I Get a Loan Using My Disability Benefits

Federal guidelines and laws like the Equal Credit Opportunity Act ensure lenders can not deny you a loan solely because you are on disability benefits. This means you can use your SSA payments as income for loans. However, factors like your credit score and debt-to-income ratio are still considered and may affect your approval chances.

Will Disability Loans Affect My SSI or SSDI?

SSDI payments are provided based on your work history, not your income. Therefore, taking out a disability loan won’t affect them. When it comes to SSI, funds obtained through a loan or line of credit may be considered an asset if unspent in the month they were borrowed. This can potentially increase your income and reduce or even suspend disability payments if you exceed the resource limit.

When Might I Need a Disability Loan?

A disability loan can help you handle unexpected costs or larger expenses that you can not cover out of pocket in one lump sum. Some good ways to use the loan funds include:

• Manage living expenses before disability begins. As it may take some time to get your disability payment after filing a claim, a loan can help you meet your day-to-day needs, such as groceries, rent, or bills.
• Cover medical or equipment costs. Health insurance typically doesn’t cover all the disability-related expenses you may face. Loan funds can help you with wheelchair platform lift installation or provide financing for specific medications, custodial care, or hearing aids.
• Meet your personal needs. Your disability benefits may not be enough for big purchases or home improvements required to create a more accessible living space. In such situations, loans can provide much-needed financing, allowing you to split the total cost into affordable monthly payments.

Types of Loans for People on Disability Benefits

There are different types of loans that accept your disability payments as proof of income. Each of them has its own terms and requirements that need to be considered carefully.

Unsecured Personal Loans

With an unsecured loan, you can receive a certain amount upfront without providing collateral. The repayment is made in fixed monthly installments over a set period, which typically ranges from 12 to 84 months.

Loan amounts are usually between $1,000 and $50,000, depending on your income. Interest rates range from 5.99% to 35.99%. As unsecured loans are considered riskier for a lender due to the lack of repayment guarantee, good credit and fixed income are often needed to qualify. 

Secured Loans

Secured loans allow you to borrow against some of your valuable assets, such as a car, house, or your savings account balance. The amount you can get is usually a portion of your collateral value. Repayment periods may be from 30 days to 30 years, depending on the loan type.

Secured loans usually have lower interest rates compared to unsecured products, but also come with the risk of losing your property in case of default. Popular options include home equity loans and lines of credit, title loans, auto equity loans, and share-secured loans.

Notice: Title loans are risky due to high APRs that often exceed 300% and short repayment terms of up to 30 days. Only use them as a last resort option and ensure you can meet the terms.

Credit Union Loans

Credit unions are not-for-profit institutions with a focus on helping local communities. They offer loans and other financial services to their members who live, work, or belong to a specific organization or geographic area.

These institutions usually provide personal loans, auto loans, and payday alternative loans (PALs), often at lower interest rates compared to banks. Credit unions may accept applicants with bad credit, but a hard credit check is required. Monthly membership fees may also apply. 

Installment Loans

Installment loans work similarly to unsecured personal loans but offer lower amounts for a shorter period. Their main benefit lies in the ability to qualify with bad or no credit due to no hard credit check performed. However, a low credit score may result in a higher interest rate.

People on disability can borrow from $500 to $5,000 and repay the funds over a period of 2 to 24 months. Installment loans are often available through online platforms, making it faster and easier to obtain the funds.

Payday Loans

These cash advance loans are suitable for people on disability with bad credit who need a small amount to cover short-term emergency expenses. They let you borrow between $100 and $1,000, depending on your income and state regulations. The repayment needs to be made within up to 30 days, allowing you to adjust the due date to your next disability payment. Almost instant approvals allow you to receive quick payouts, often on the same day of approval.

While payday loans are income-based and come with simple requirements, making them easy to get with bad credit, they also have high interest rates. Lenders usually charge from $10 to $30 for each $100 borrowed, which translates into an APR of 260% to over 700%.

What Documents Do I Need to Apply

To qualify for loans, people on benefits typically need to provide the following items:

• Valid government-issued photo ID
• Proof of income (a Social Security award letter, SSA-1099 form, or VA disability award letter)
• Active bank account details
• Proof of address (utility bills, lease agreement, mortgage statements)

Each lender may have their own document requirements, so make sure to check out the specific list before applying.

How to Get a Disability Loan

Common steps to apply for a loan on disability include:

1. Decide on the amount you need. This will affect your loan choice and your further monthly payments. The more you borrow, the more picky lenders are. Plus, you will have to meet stricter income requirements.
2. Compare terms. Loan conditions may vary widely by lender and the loan type. Most loan providers allow you to prequalify and access your potential terms with no impact on your credit score, making it easy to find the best offer among multiple lenders.
3. Apply for a loan. An online application is quite common and allows you to complete the process from the comfort of your home. Provide your personal and financial information, attach the required documents, and submit a form.
4. Get approved. At this stage, some lenders may perform a hard credit check to assess your credit and financial profile. The approval process can take from a few minutes to several days, depending on the loan type.
5. Sign the agreement. If approved, review the terms carefully as they can differ from those shown after prequalification. If the conditions suit you, sign the agreement.
6. Receive the money. The funds are usually transferred to your bank account within 1 to 3 business days. If you request emergency disability funding from 1F Cash Advance, the money can be deposited on the same day.

Pros and Cons of Disability Loans

Loan options for disabled people can help you manage your expenses that you can’t cover on your own. However, they also come with several drawbacks. Consider both advantages and pitfalls carefully.

Pros:

• The ability to split the cost into affordable monthly installments
• Most disability loans have fixed APRs and payments, making it easier to budget
• On-time payments can help you improve your credit over time
• Funds spent in the month they borrowed do not count as income for SSI
• Convenient repayment schedules keep your payments affordable

Cons:

• Some options come with high APRs and short repayment terms, especially if you have bad credit
• You may be required to provide collateral
• Loans often create long-term debt that stays with you after the purchase is made or expenses are covered
• If you don’t spend the loan funds within the same month you receive them, the remaining amount will count toward your next month’s resource limit for SSI
• Late or missed payments may result in extra fees and damage your credit score

Safer Alternatives to Loans

People on disability have other ways to get extra support without taking on debt. Here are some options to consider first.

Expedited SSI Payments

The SSA may offer expedited SSI payments in one of the four types of situations:

• Presumptive disability (PD) or presumptive blindness (PB) payment
• Emergency advance payment
• Immediate payment
• Expedited reinstatement cases

Government Aid

Besides disability payments, there are various government-backed programs available to disabled people. These forms of aid typically provide medical assistance and help with essentials like food, housing, and utility bills. Here are some options to consider:

• Medicaid is a form of federal assistance for low-income families and people with disabilities that covers doctor visits, hospitalizations, and therapy. 
• Supplements Nutrition Assistance Program (SNAP) provides monthly benefits to help low-income individuals and families purchase food.
• Veterans Affairs Healthcare offers disabled veterans assistance with medical expenses and provides other benefits to those with service-connected disabilities.
• ABLE accounts allow people on disability to save money for related expenses without affecting their SSI eligibility.
• Unemployment insurance provides a portion of the previous salaries to out-of-work employees who haven’t lost their positions through their own actions.
• Housing Choice Voucher Program, also known as Section 8, is designed to help disabled individuals cover housing costs and access supportive services.

Nonprofits and Grants

Unlike loans, grants are free money that you don’t need to pay back. To qualify, you typically need to meet certain eligibility requirements. Here are a few associations and foundations that provide grants to individuals with specific health conditions and disabilities:

• The American Diabetes Association helps people with diabetes cover the cost of insulin and other medical supplies. 
• The Hearing Health Foundation offers financial support for deaf individuals to help them access hearing aids and devices.
• The National Multiple Sclerosis Society awards grants for adaptive equipment, home modifications, and other medical expenses people with multiple sclerosis may face.
• The Autism Society assists individuals with Autism Spectrum Disorders (ASD) to help them access educational programs and therapy or meet other financial needs.
• The National Federation of the Blind (NFB) provides scholarships that finance higher education or vocational training for blind and visually impaired individuals. 

Bill-by-bill Options

If you can’t manage your monthly bills, there are a few plans and programs you can consider: 

• Medical payment plans may be offered directly by service providers to help disabled individuals split the cost into several payments.
• Low Income Home Energy Assistance Program (LIHEAP) is a government-backed program that helps low-income individuals with heating and cooling costs, emergency energy services, and waterization.
• Utility company programs may be available in the form of discount rates or bill forgiveness directly from your gas, electric, or water provider if you can prove the need.
• Waterization Assistance Program (WAP) provides free home energy improvements to help disabled individuals reduce bills over time.

Bottom Line

Social Security disability loans can provide quick financial assistance to people who receive SSA benefits and can’t handle their living expenses. However, a loan may affect your SSI payments if unspent in the month it was received. Keep in mind that taking on debt is a responsible decision that requires proper budgeting. Before obtaining a loan, consider alternatives like grants or government assistance programs. If borrowing money is your only option, explore various loan types, compare terms, and make sure you can handle this financial obligation.

References

1. National Disability Institute & FINRA Investor Education Foundation. Financial Capability of Adults with Disabilities
2. Financial Health Network. The Financial Health of People With Disabilities
3. Centers for Disease Control and Prevention. Annual disability statistics
4. Social Security Administration. Supplemental Security Income (SSI): Eligibility
5. Social Security Administration. Cost-of-Living Adjustment (COLA)
6. U.S. Government Publishing Office. Equal Credit Opportunity
7. Social Security Administration. Supplemental Security Income (SSI)

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