Loans For People on Disability: How Do They Work?

Whether you’re waiting for disability payments to kick in or facing an unexpected expense on a fixed income, a personal loan can be a lifeline. Under the Equal Credit Opportunity Act, lenders can’t deny your loan application just because you receive disability benefits. But you’ll still need to meet income and credit score requirements, which vary from one lender to the next.

What are disability loans and how do they work?

The term “disability loan” refers to any loan that a person with a disability qualifies for, using their disability benefits as a source of income. In this guide, we’ll focus on personal loans, which are a type of installment loan that provides a lump sum of cash to be repaid, with interest and applicable fees, in fixed monthly payments over time. 

Personal loans can be used for most expenses and offer quicker funding than secured options like a home equity loan. They have a fixed repayment schedule and some lenders offer personal loans for borrowers with low incomes.

Types of disability loans

Unsecured personal loans

Unsecured personal loans are the most common type of personal loan available. Most lenders offer loans up to $50,000, but some will lend up to $100,000 or more, depending on your income and credit score. APRs tend to range from around 7% to 36%.

They don’t require collateral, so they may have higher APRs and stricter minimum credit score requirements relative to secured loan types. There’s no risk of losing an asset, but you’ll still damage your credit if you default on the loan. 

Secured personal loans

Secured personal loans require that you offer collateral, a valuable asset you own, as a guarantee that you’ll repay the loan. Secured personal loans are less common than unsecured personal loans, but they come with a couple of advantages. Lenders typically offer lower rates and may approve borrowers with a lower credit score for secured loans. Just make sure you can afford the monthly payment, because you could damage your credit and lose your collateral if you fail to repay. Here are a few lenders offering secured personal loans:

Other loan types

If you have home equity, a home equity loan or home equity line of credit are options to consider. They tend to have lower rates than personal loans and may offer higher loan amounts, depending on the amount of equity you have. But be careful. Home equity loans are secured by your home, which means you could potentially lose it if you fall behind on payments. 

You might also consider a personal line of credit if your bank or credit union offers one and you only need occasional access to funds. 

Who is eligible for a disability loan?

Anyone with income and a bank account could qualify for an unsecured loan, like most personal loans or a personal line of credit. But most lenders have additional requirements like a minimum credit score. “Most lenders focus on credit score and income,” says Liner. “Since disability benefits are fixed and limited, that can raise red flags. However, some people on disability still qualify, especially those with a strong credit history or a co-signer.”

In addition to meeting income and credit requirements, you’ll need sufficient home equity for a home equity loan or line of credit.

If you have a low income and existing debts, it may be especially tough to qualify for any loan. Most lenders consider your debt-to-income ratio, which represents how much of your income you spend making payments on debts.

Pros and cons of disability loans

Pros

• Fixed rates and payments: Personal loans typically have fixed interest rates, so payments stay the same each month. That makes it easier for people on a fixed income to plan around repayment. 
• Lower APRs than credit cards: Personal loans have lower average APRs than credit cards (11.57% for two-year personal loans compared to 21.16% for credit cards, according to the  Federal Reserve). It may be tempting to rely on credit cards while you wait for benefits or adjust to your change in income, but high APRs and compounding interest can make credit cards expensive. 
• Quick funding for unsecured loans: Unlike disability benefits, which require a lengthy approval process, personal loans are quick to fund. Some lenders even offer same-day personal loans. But you can usually get the cash you need within a few days, though the exact timeline depends on the lender and where you bank. 

Cons

• Getting approved can be challenging and time-consuming: Borrowers with limited incomes due to disability may have trouble meeting some lenders' minimum income requirements, and not all lenders treat disability benefits as valid income. Also, borrowers on disability will likely have to submit more documentation, such as disability benefits letters. 
• May impact SSI eligibility: While loan funds don’t count as income or reduce your SSI payments, any money you borrow that you don't spend that month counts toward your resource limit for the next month. Exceeding the $2,000 resource limit ($3,000 for a couple) could impact your benefits. “If you are collecting SSDI, your benefits will not be impacted,” says Colin Ruggiero, co-founder at DisabilityGuidance.org. 
• May lead to financial trouble if you default: “While loan companies typically can't seize disability benefits from someone in default, juggling a fixed income with poor credit could leave you in difficult situations when it comes to your financial future,” says Ruggiero. 

How to get a personal loan for people on disability

1. Review your finances and gather your documents: Check your credit score to find out which lenders you might qualify for. You can check your score for free using Credible's credit-monitoring tool. Make sure you have a disability benefits letter that shows your expected payments or proof of income from another source. 
2. Research lenders: Check lender eligibility requirements, including accepted sources of income, to find personal loans you may qualify for. 
3. Prequalify with a few lenders: Many lenders allow you to prequalify without hurting your credit. The lender provides an estimated APR and monthly payment, although it's not an offer of credit and the rates and terms may differ from those presented in a loan offer after you've applied. Compare options from a few different lenders using a personal loan marketplace like Credible.
4. Formally apply: Choose a loan option with a low APR and an affordable monthly payment, and continue with the formal application. A loan application typically requires a hard credit inquiry, which can cause a temporary dip in your credit score.
5. Review and sign your loan agreement: Make sure the final loan offer is manageable with your income. “It's crucial to understand the terms of the loan and your ability to repay,” says Ruggiero. After reading your loan agreement carefully, e-sign the documents.
6. Get your cash and begin repayment: Wait for the lender to transfer the loan funds to your bank account. Make sure to set aside enough money for your first payment. 

How to get a disability loan with bad credit

Getting a disability loan with bad credit can be especially challenging, but some lenders offer bad credit personal loans. The following strategies may help you get approved:

• Offer collateral: Collateral provides a backup for the lender if you fail to repay, so some lenders have less stringent credit requirements for secured loans.
• Apply with a co-signer or joint applicant: Applying with a co-signer or co-borrower may increase your approval odds. A co-signer is someone with good credit who guarantees the loan in case you fail to repay, while a co-borrower shares responsibility for repaying the loan and has access to the loan funds. 

How does the government decide who qualifies for disability?

The government may determine that you qualify for disability benefits if a doctor diagnoses you with a severe physical or mental impairment on the Social Security Administration’s listing of impairments that prevents you from performing your previous job and any other type of gainful employment for 12 consecutive months or more. 

The SSA provides disability benefits through two separate programs, both of which have additional requirements:

• Social Security Disability Insurance (SSDI): To qualify for SSDI payments, you must have been employed long enough and recently enough in a job covered by Social Security, in addition to having a condition that meets the government’s definition of a disability. 
• Supplemental Security Income (SSI): There’s no work requirement for SSI payments, but you need to demonstrate financial need. You must continue to meet the SSI’s income limits and resource limits to stay eligible. 

Some people qualify for both programs. When applying for either, “The process is notoriously complex,” says Liner. “Many applicants are denied initially.” For SSDI, there’s also a 5-month waiting period before benefits kick in. Some people may use disability loans to hold them over during the waiting period.

Some people also receive short-term or long-term disability benefits through their employer or a private disability insurance provider. Benefits kick in after an elimination period, which is typically 90 days for long-term disability insurance.

Alternatives to a disability loan

Before applying for a personal loan, consider the following alternatives:

• Assistance programs: “Before turning to a loan, I always suggest people explore programs that offer direct assistance with rent, utilities, transportation, or food,” says Liner. Federal and state assistance programs don’t require repayment. You can also research local government assistance programs and nonprofit organizations that serve people with disabilities. 
• Presumptive disability benefits: People with certain disabilities who are applying for SSI benefits may qualify for presumptive disability pay while waiting for approval. You don’t need to repay the money, even if the SSA denies your application. If you’re only applying for SSDI benefits, you won’t be eligible. 
• SSI emergency advance payment: If you’re facing a financial emergency and your SSI benefits are delayed, the SSA may approve a one-time advance payment.
• Interim public assistance: SSI applicants in most states can qualify for the Interim Assistance Reimbursement (IAR) Program if SSI approval is likely. The program provides financial help that you must repay out of your SSI back pay. You can get more info from your local Social Security office. 
• Short-term disability benefits: Five states require employers to offer short-term disability insurance to workers. You may qualify to receive state benefits while you wait for SSDI or SSI approval. Or, if you have short-term disability insurance as part of your employee benefits package, you can typically receive payments while you’re waiting for long-term disability benefits to kick in. 
• Payday alternative loans: Some credit unions offer payday alternative loans, which are small-dollar loans up to $2,000 with repayment terms up to 12 months. You must be a member of a credit union to apply, but these loans come with advantages — the maximum interest rate is 28%, for example, and you don’t need good credit to qualify. 
• Friends and family loans: Borrowing from family or friends can tide you over while you’re waiting for disability payments to begin. If you’re worried about logistics or relationship tension, consider using a family loan platform like Pigeon. You can also collect small amounts of money from people in your social network with a crowdfunding campaign — but if you’re applying for SSI, bear in mind that the funds could impact your eligibility.