Disability Loans: What They Are and How To Get On

If you had to stop working due to a disability, you could find yourself in a difficult financial situation. Whether you’re set to receive government benefits or disability insurance payments, it can take time to get the cash you need to manage your basic expenses. Even if you’re already receiving disability benefits, you might need extra cash to cover an unexpected expense or upgrade your home to make it more accessible. 

In either case, consider a disability loan, which commonly refers to a personal loan or other loan type used to cover expenses caused by disability.

What is a disability loan?

A disability loan is any type of loan that a person with a disability uses to cover expenses. There are a few reasons you may need cash while you have a disability:

• Waiting for benefits: If you’re waiting to receive Social Security Disability Insurance (SSDI), you’ll need to cover expenses for at least five months while you wait for benefits to kick in. If you have coverage from a disability insurance policy, you may need to wait 30 days to two years after filing a claim to receive payments, depending on the elimination period in your policy. A disability loan may help you pay rent and buy groceries in the meantime, although getting a loan without a source of income can be a challenge. 
• Covering costs associated with disability: Even if you’re receiving benefits, you may have costs associated with health care needs, assistive equipment, or accessibility, like home upgrades to accommodate a wheelchair. And your health insurance policy may not cover everything. A disability loan can help you pay for these costs over time. 
• Covering other expenses: You may also incur other expenses, like an auto or home repair, which can be difficult to pay for upfront when you’re solely receiving disability benefits. A disability loan can be a way to supplement your income from a disability insurance policy or financial assistance program. 

Types of disability loans

Personal loans

With a personal loan, a lender provides you a sum of money upfront, and you repay it in fixed monthly installments over time. You can borrow several hundred or several thousands of dollars, for almost any purpose, and repay the loan over months or years. Personal loans are typically unsecured, which means you usually won’t be required to provide an asset that the lender can take if you fail to repay. However, you’ll need to meet the lender’s other requirements, including credit and income requirements, to qualify. The average interest rate on a 24-month personal loan was 12.49% in Februray 2024, according to Federal Reserve data. 

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Secured loans

With a secured loan, you provide your property as collateral. For example, a home equity loan is secured by your home, while an auto loan is secured by the title to your vehicle. These loans can be easier to obtain if you have less-than-perfect credit, and they often come with lower interest rates. However, the lender can take possession of your property if you fail to repay a secured loan.

Related: Auto Loan vs. Personal Loan

Payday alternative loans (PAL I and II)

PAL I and PAL II loans are types of installment loans offered by credit unions as an alternative to payday loans. You must be a credit union member for one month to receive a PAL I loan, but Pal II loans are immediately available to new members. With a PAL II loan, you can borrow up to $2,000 and repay the loan over one to 12 months. Unlike costly payday loans, PAL loans come with a maximum interest rate of 28%. You don’t need good credit to get a PAL loan, but you will need proof of income. 

Comparing your options

Consider your personal financial situation when choosing the best type of disability loan for you. If you’re still waiting for benefits, a secured loan or a personal loan from a lender that doesn’t require income verification will be your best bet. You can also apply for one of those loan types with a cosigner. If you’re currently receiving benefit checks but you have bad credit, a PAL loan will likely be your best option. 

Government benefits and financial assistance programs

If you have a disability, there are several programs you may be eligible for that can provide you with monthly income. 

• Supplemental Security Income (SSI): SSI provides monthly payments to older adults and people with disabilities who have little income and few or no resources. It’s important to understand that cash from a disability loan could impact the payments you receive from SSI if you don’t spend it within the month it is received, since it would then count toward your resource limit. 
• Social Security Disability Insurance (SSDI): To be eligible for SSDI, you’ll need to have been employed in jobs covered by Social Security and have a medical condition defined as a disability by Social Security. After your disability begins, there’s a five-month waiting period before you’ll be eligible to receive payments, unless your disability is due to amyotrophic lateral sclerosis (ALS) and you were approved for benefits on or after July 23, 2020. A disability loan won’t impact your SSDI payments. 
• State and local assistance programs: A few states have disability insurance programs that provide eligible workers with temporary payments after the onset of disability. Research programs in your area to see what benefits are available. 
• Grants and specialized financial assistance for individuals with disabilities: Some nonprofit organizations offer grants to people with disabilities to help them pay for equipment or services. Unlike loans, grants do not need to be repaid. They don’t typically provide ongoing income. However, they may count toward your resource and income limit, which could impact your SSI payments. 

SSI expedited payments

In some cases, the Social Security Administration may provide an expedited payment before a formal decision is reached regarding SSI benefits. Expedited payments include the following:

• Presumptive disability or presumptive blindness payments: These payments can cover the gap between submitting your application and approval. You’re deemed eligible based on the severity of your condition and the likelihood that your claim will be approved. Financial need is not considered.
• Emergency advance payment: You may receive a one-time advance payment if you’re facing a financial emergency that poses a threat to your health or safety and are deemed presumptively eligible for benefits. This advance will be recovered from future payments. 
• Immediate payment: An immediate payment will be recovered from the first payment made to you. You may be eligible for immediate payment if you’re facing a financial emergency and are applying for or are due SSI benefits.

How to get a loan on disability

Getting a disability loan can be a challenge. Lenders are not legally allowed to deny your application because you receive your income from a public assistance program, but they can make a determination based on the amount of income you receive. Some lenders have minimum income requirements that may preclude disability benefit recipients from obtaining a loan. However, there are a few lenders, like Universal Credit, a Credible partner, that may not have minimum income requirements. 

If you’re currently receiving benefits, consider reputable low-income lenders. Whether you currently receive income or not, applying with a cosigner may improve your chances of approval. A cosigner is someone with good credit who agrees to be responsible for the loan if you fail to make the required payments. Securing your disability loan with collateral may also improve your chances of approval. 

Alternatives to disability loans

If you’re struggling to get approved for a loan, consider these alternatives.

Retirement account withdrawals

The IRS offers a few ways to withdraw from your retirement account without incurring a 10% early withdrawal penalty.

• Hardship distribution: You can receive a hardship distribution to help with an “immediate and heavy financial need.” 
• Withdrawals: You can take a withdrawal after a total and permanent disability or take a withdrawal to pay for medical expenses that exceed 10% of your adjusted gross income. 
• SEPP payments: You can elect to receive a series of “substantially equal periodic payments” (SEPP) over the course of your life. 

You’ll still need to pay applicable income tax on the funds if you made tax-free contributions to your retirement account. 

Friends and family loans

If you have a friend or family member with the means to help, talk to them about your disability. They may be able to offer a gift or low-interest loan with more flexibility than disability loans provide. 

Crowdfunding

Crowdfunding can be a great way for the people in your social network to pitch in small amounts of money to help with your expenses. You can start a crowdfunding campaign for your disability expenses on a platform like CoFund Health or GoFundMe.