If you’re disabled or applying for disability benefits, you might need to borrow money for various reasons. Maybe you need to pay for living expenses while waiting for your disability claim to be approved, or maybe you need to buy equipment or modify your home to accommodate your disability.
Whatever your reason, you should know that there are loans for disabled people available from both the government and private lenders. However, not all loans are created equal, and some may have better terms and conditions than others. In this guide, we’ll explain what disability loans are, what types of loans are available, and how they might affect your disability benefits.
What Is a Disability Loan?
There isn’t an official disability loan. The term “disability loan” is typically used to describe a variety of loans and situations. For some people, a disability loan is one that they use to pay for living expenses and tide themselves over until they’re approved for disability benefits. For others, a disability loan might be used to purchase equipment such as wheelchair ramps or mobility scooters. Still, other people refer to a disability loan as any loan you take out, for any purpose, while on disability benefits.
Types of Disability Loans
Any type of loan can be a disability loan, depending on your definition. Here are some different types of loans that people can take out if they’re disabled:
- Personal loan. These can be small or large and secured (backed by an asset such as a car or bank account) or unsecured (not tied to any asset the bank can repossess if you default on the loan). You can use personal loans for almost any expense.
- Mortgage. There are often special programs available to help disabled people buy homes. For example, veterans who are disabled because of service-related injuries may qualify to have the funding fee waived on a VA loan.
- Auto loan. Some lenders, such as Bank of America, offer special types of car loans to buy vehicles modified for people with disabilities.
Pros and Cons of Disability Loans
Before taking out a disability loan, weigh the potential benefits against possible pitfalls.
Pros
- May be able to apply for and receive the loan online
- Can build credit if you make all your payments on time
- Can get your funds very quickly
- May be able to find special, more-affordable disability loans in certain cases
- Can afford your current lifestyle while awaiting a decision on a disability claim
Cons
- May be better off with an alternative option
- May not qualify if you have low or no income
- Can become ineligible for Supplemental Security Income (SSI) benefits if it puts you above means-testing limits
- May be offered a high-interest loan if you don’t have a strong income
How to Qualify for a Disability Loan
Whether you qualify for a disability loan or not depends on several factors:
- Type of disability loan. Personal loans, mortgages, auto loans, and other types of loans that disabled people may need have different eligibility criteria. For example, personal loans may require a minimum credit score and income level, while mortgages may require a down payment and proof of homeowners insurance.
- Special loan programs. There are some special lower-cost loan options available only to qualified disabled people. For example, the Social Security Administration (SSA) offers a Plan to Achieve Self-Support (PASS), which allows SSI recipients to set aside income and resources for a specific work goal without affecting their benefits. You can use PASS funds to pay for things like education, training, equipment, or business expenses.
- Source of income. If you receive disability benefits from the SSA, such as SSI or Social Security Disability Insurance (SSDI), you can use them as income to qualify for a loan. However, not all lenders accept these benefits as income, and some may have additional requirements. For example, some lenders may require that your benefits last for at least three years from the date of your loan application.
- Credit history. Your credit history is a record of how you’ve used credit in the past, such as how much debt you have, how often you make payments on time, and how many credit inquiries you’ve had. Lenders use your credit history to assess your creditworthiness and ability to repay the loan. If you have bad credit or no credit history at all, you may have trouble getting approved for a disability loan or may face higher interest rates and fees.
How Loans for Disability People Affect Your Benefits
Taking out a disability loan can affect your eligibility for certain types of disability benefits, depending on how the SSA classifies the loan.
- SSI. SSI is a needs-based program that provides monthly payments to people who have limited income and resources and meet certain disability criteria. To qualify for SSI, you must have less than $2,000 in countable resources as an individual or $3,000 as a couple. Countable resources include cash, bank accounts, stocks, bonds, and some property. A loan is not a countable resource if it is not forgiven and you have to repay it. However, if you receive a loan in cash or have it deposited into your bank account, it will count as income in the month you receive it and as a resource in the following months if you don’t spend it. This can reduce your SSI benefit amount or make you ineligible for SSI altogether.
- SSDI. SSDI is an insurance program that provides monthly payments to people who have worked and paid Social Security taxes long enough and meet certain disability criteria. To qualify for SSDI, you must have a certain number of work credits based on your age and earnings. A loan is not a work credit and does not affect your eligibility for SSDI. However, if you receive a loan in cash or have it deposited into your bank account, it may affect your eligibility for other benefits that are based on income and resources, such as Medicaid or Supplemental Nutrition Assistance Program (SNAP).
Alternatives to Disability Loans
If you’re not sure if a disability loan is right for you, or if you can’t qualify for one, you may want to consider some alternatives:
- Grants. Grants are funds that you don’t have to repay, usually provided by the government or nonprofit organizations for specific purposes. For example, you may be able to get a grant to pay for home modifications, assistive technology, or medical expenses related to your disability.
- Credit cards. Credit cards are a form of revolving credit that allows you to borrow money up to a certain limit and pay it back over time with interest. Credit cards can be useful for short-term or emergency expenses, but they can also be costly if you don’t pay off your balance in full every month or if you have a high-interest rate.
- Payday loans. Payday loans are short-term loans that are typically due on your next payday. They are easy to get but also very expensive, with high-interest rates and fees. Payday loans can trap you in a cycle of debt if you can’t afford to repay them on time or if you have to roll them over or take out new ones to cover the old ones.
- Family and friends. Borrowing money from family and friends can be a convenient and low-cost option, but it can also come with risks. You should make sure that both parties agree on the terms of the loan, such as the amount, interest rate, repayment schedule, and consequences of default. You should also put the agreement in writing and keep records of payments. Borrowing money from family and friends can also affect your relationship with them, especially if there are conflicts or misunderstandings.
Conclusion
Loans for disabled people can be a helpful way to access cash when you need it, but they are not the only option. You should compare different types of loans and lenders, as well as alternatives such as grants, credit cards, payday loans, and family and friends. You should also consider how taking out a loan can affect your disability benefits and your overall financial situation.
Before applying for a disability loan, make sure you understand the terms and conditions of the loan, such as the interest rate, fees, repayment terms, and penalties. You should also check your credit report and score to see where you stand and what you can do to improve them. Finally, you should only borrow what you need and what you can afford to repay.
