If you're currently on disability, it's important to know that you may qualify for a personal loan. How easy it will be depends on the type of disability you're receiving and the kind of loan you're looking for. Keep reading to learn more about landing a loan while on disability and how it could impact your monthly benefits.
Can you get a loan while on disability?
You can get a loan while on disability if you qualify. Typical requirements include a minimum credit score and a maximum amount of existing debt (this varies based on your income). How long it takes to get a loan varies, but it shouldn't take more than a few days for many loans
How can a loan affect disability benefits?
A loan could change your Supplemental Security Income (SSI) eligibility. According to the Social Security Administration, a loan is not considered income. However, if you borrow money and don't spend it the same month, it will count toward your resource limit. If your resources exceed allowable limits, you will not receive SSI benefits for that month.
So if you get SSI, don't apply for your loan before you need it and consider applying at the end of the month.
Types of disability loans
If you plan to get a loan while on disability, the type of loan you get will depend on why you need it. Here are some options.
Personal loan
A personal loan can be used for a variety of reasons, including to finance medical expenses or an engagement ring. Most of these loans don't require collateral.
To get an unsecured personal loan while on disability, you will need to satisfy the lender's minimum credit score.
You'll also need to prove you can pay for the new loan on top of any existing debt. This can be an obstacle for people on disability, because you're receiving a very modest income. So there isn't much room for new debt payments. For help finding out about these limits, read up on the maximum you can borrow with a personal loan. Or you can check with one of the personal loan lenders on our list.
Mortgage loan
You may be able to use your long-term or permanent disability income to qualify for a mortgage. Some home loan programs will even give you special benefits if you are disabled. For example, if you're a disabled veteran, you can apply for a waiver of the VA loan funding fee.
Or if your income is low, the USDA has the Single Family Housing Direct Loan program, where the government pays a portion of your mortgage payment. You can find out more in our guide to USDA loans.
If you are on short-term disability, you can only count on those payments for a limited amount of time. Since your disability income will end, your mortgage application might be declined if you have no other sources of income. However, if you are still employed and can document that you have a job to return to after your disability benefits end, the mortgage lender may consider your regular income in addition to your disability income.
Disability loan
Some people look for a loan to bridge the gap between becoming disabled and the time they begin to receive disability payments. This is a personal loan, and you should approach it with caution. This type of loan can be expensive and have a short repayment period. If your disability claim takes longer than you expected, you risk defaulting on the loan. Also, if your disability claim is denied, you're still on the hook for the loan.
Before you take a short-term loan for anticipated disability, find out if you are eligible for emergency disability assistance. SSI recipients can get expedited SSI benefits under certain circumstances. To learn more about your options, it's a good idea to get in touch with your unemployment office.
Medical loan
You might have seen a brochure for medical loans on the reception desk at your doctor's office or dental clinic. These types of loans are used to finance medical expenses. They often have low interest rates and terms that result in affordable payments. Also, the application process is the same for everyone, regardless of whether you have a disability.
The catch is that most medical loans are deferred-interest loans. If you don't pay off the entire loan by the end of the promotional period, you will be charged interest from the start date of the loan, including the portion you have already paid off.
If you receive federal disability benefits, you will be eligible for either Medicaid, Medicare, or both. In some states, you can request coverage backdated to three months prior to your application for coverage. These may be better options for you to look into before you apply for a medical loan.
Auto loan
An auto loan is a secured loan that uses your car as collateral. If you default, the lender can take away the collateral.
You can apply for an auto loan while on disability without jumping through any special hoops. Most car loan lenders have a minimum credit score requirement and simply run a credit check to see if you qualify. Some will also verify your income.
Payday loan
A payday loan is a short-term, high-interest loan. If possible, it's best to avoid these loans.
Most people are unable to repay their payday loan in full by the due date. And when that happens, you'll have to renew the loan and pay more fees. If you can, it's better to find alternatives to payday loans before grabbing what looks like a fast, easy loan.
How to get a loan on disability
Here's how to get a loan on disability:
- Check your credit: Be sure your credit report doesn't have any errors that could affect your ability to qualify for a loan.
- Ask for help: Check with your local Department of Health and Human Services office to find out if you are eligible for financial assistance.
- Research special programs: Special loan programs can help people on a limited fixed income get the financing they need.
- Shop around for the best rates: Check rates with multiple lenders, especially those who will do a soft pull on your credit until you are ready to apply.
- Wait until you need the loan: Avoid getting the loan too early, or you might jeopardize your disability income.
- Apply for the loan: Your lender will tell you what documentation to submit.
Like any major financial decision, it's important to weigh the pros and cons of taking out a personal loan, particularly when you're on a fixed income. Your best bet is to take time to understand your options and carefully make a decision that works for you.
The Ascent's best personal loans
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
FAQs
Yes. If you qualify, you can get a personal loan while on disability. Expect the lender to check your credit. You may need to have a minimum credit score or a maximum debt-to-income ratio, and your lender will probably want to see proof of your income.
In most cases, yes. Long-term disability benefits and permanent disability insurance count as income for the purpose of qualifying for a loan.
It's a good idea to talk to lenders and government agencies about special programs that might make it easier for you to get your financial needs met. Once you identify the right program, applying for a loan on disability is no different from applying under other circumstances. Before you apply, make sure your credit file is error free, pay all of your bills on time, and pay down your other debt as much as you can.