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Everything You Need To Know About Getting a Loan While on Disability

By Timothy Moore · September 30, 2022 · 6 minute read

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Everything You Need To Know About Getting a Loan While on Disability

Not only can you get a loan while on disability, sometimes it’s 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 funding medically important purchases, like a wheelchair.

But can a personal loan impact your disability benefits? Who qualifies for such benefits, and how do you get a loan on disability? Our 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. 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.

If you want to dig deeper into this kind of loan, SoFi offers a guide to What Is a Personal Loan?

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.

As with any loan, you can improve your chances of approval 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 with less favorable terms.

No lender can legally deny your loan application because you are receiving government assistance. If you believe a lender is violating the ECOA guidance, you can contact the Consumer Finance Protection Bureau at (855) 411-2372.

Recommended: What Is a Share Secured Personal Loan?

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 kick in faster — the first full month after your 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. (Spousal and parental contributions can also apply.)

Recipients may be more likely to need a disability loan when anticipating SSDI benefits because they don’t kick in until the sixth full month of disability. However, the SSDI benefit is worth the wait because it has a higher potential monthly payout.

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.

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. This will reduce your overall benefit for the next month.

These restrictions do not apply to SSDI benefits.

Recommended: The Foundation of an Unsecured Personal Loan

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 physical or mental disability must preclude 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. If you have enough credits, the SSA will then utilize five questions to determine if you qualify:

1.    Are you working?

2.    Is your condition “severe”?

3.    Is your condition found in the list of disabling conditions?

4.    Can you do the work you did previously?

5.    Can you do any other type of work?

Head to the SSA website to learn more about qualifying for disability benefits.

The 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 call for you? It can be helpful to weigh the pros and cons before applying:

Pros of Getting a Loan

Cons of Getting a Loan

You can get financial assistance to help with bills while waiting for benefits to start paying out. Receiving a personal loan and not spending all the money can impact your SSI benefits.
Responsibly managing a personal loan can help boost your credit score. Personal loans carry the potential for high interest 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:

•   Checking your credit score: Knowing your score before you start looking for lenders can let you know the interest rate and other terms you can expect. It might also help you narrow the field of possible lenders.

•   Finding a lender: Your personal bank or credit union may offer personal loans, but you can also research online to find personal loans that offer good terms for your specific credit score.

•   Compiling 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.

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 benefits 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.

•   Family and friends: Family and friends may be willing to offer monetary assistance — or even temporary housing — as you learn to manage a new disability.

•   Payday loans: If you need cash fast, personal payday loans may sound like the answer. But they can have interest rates of more than 600%. Protect yourself by staying away from these predatory short-term loans.

The Takeaway

Disability loans are personal loans that 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 a disability loan? You can get a personal loan through SoFi for up to $100,000, at a fixed interest rate. Unlike some other lenders, SoFi won’t charge you any origination fees or pre-payment fees. You can even check out your rate without impacting your credit score.*

Waiting for disability benefits to kick in? See how a SoFi personal loan can help.

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. In fact, some people take out personal loans to cover expenses until their Social Security Disability Insurance benefits kick in.

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.


Photo credit: iStock/monstArrr_

*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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