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Are There Personal Loans for People on Disability Benefits?

Are There Personal Loans for People on Disability Benefits?
Jason Steele
Jason SteeleUpdated February 8, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If you’re on disability benefits, you can get a personal loan if you need one. Banks and lenders are legally required to treat you the same as other customers. However, there are pros and cons of applying for a loan while on disability. It’s important to know what such a loan could mean for you.Read on to learn more information about loans for people on disability.

What Are Disability Benefits?

Social Security Disability Insurance (SSDI) benefits are administered by the U.S. Social Security Administration. Social Security pays disability benefits to eligible Americans. To qualify for these benefits, you must have worked recently and now be unable to work for at least 12 months due to a medical condition, be younger than full retirement age, and not have a partial or short-term disability. 

Types of Personal Loans for People on Disability Benefits 

If you are on disability benefits, there are a few different types of personal loans you can consider. Here’s more information about loans for people on benefits. 

Family Loans

If you have family or friends who are willing to loan you money, a family loan could save you money on interest rates and fees. To avoid any misunderstandings, it’s wise to put the terms of the loan in writing, including the schedule for paying it back and the final repayment date. For the sake of your personal relationships, only borrow money from family or friends if you are confident that you can repay it on time. 

Payday Loans

A payday loan is a small short-term loan that is repaid when you get your next paycheck, typically within a few weeks. Payday loans are usually $500 or less and come with very high fees. These loans can be risky because if you are unable to repay the money within the short amount of time allotted, you may quickly fall further in debt. Payday loan lenders don’t usually consider credit history, credit score, or income when issuing a loan. Typically all you need for a payday loan is a form of ID and payment information, such as your bank account. While this can make it easier to qualify for a payday loan, it could also tempt some borrowers to take out more than they can afford.Payday lenders are often considered predatory lenders and they may use deceptive practices. Different states have different regulations on these loans. You can check the regulations in your state.

Private Lender Personal Loans

Private lenders are not banks or credit unions or other financial institutions. Instead, they are companies or individuals who lend money through lending products such as personal loans. Personal loans provide borrowers with a lump sum that they repay with interest over time. These loans are typically available in amounts ranging from a few hundred dollars to thousands of dollars. Personal loans can be secured or unsecured. An unsecured personal loan doesn't require collateral, while secured loans are collateralized personal loans. You could use a car as collateral for a secured loan, for example. However, if you default on the loan, you could lose your vehicle.

Can You Get a Personal Loan While on Social Security?

It is possible to get a loan while on disability. Some people may think of these as Social Security disability loans, but actually, they are personal loans. You will still need to qualify and meet the typical personal loan requirements. That means the lender will look at your credit score, credit history, employment, and debt-to-income ratio when determining whether to approve you for a loan.Your disability benefits might count as a source of income when you apply for a personal loan. Disability benefits that may be considered income include Personal Independence Payment (PIP), Disability Living Allowance, Employment and Support Allowance (ESA), Industrial Injuries Disablement Benefit, and Universal Credit and Incapacity Benefit. Other benefits like the child tax credit, working tax credit, and child benefit or fostering allowance may be considered income as well. It’s important to be aware that having a loan could change your eligibility for Social Security benefits. Although a loan is not considered income, if you don’t spend the money in the same month you take out the loan, it will count toward your resource limit for disability, according to the Social Security Administration. As a result, you could lose Supplemental Security Income benefits for the month if your resources exceed the limits that are allowed. Applying for a loan only when you need the money may help you avoid this. 

Steps to Getting a Personal Loan on Disability

This is what the process involves for getting personal loans for people on disability. 

Reviewing Credit Score

It’s smart to know your credit score because some loans require a minimum credit score for approval. Your credit score may also help determine your interest rate and amount of the loan. Generally, the higher your credit score, the lower the interest rate you will typically qualify for.Before applying for a loan, you should review your credit report and make sure it doesn’t have any errors. If you see a mistake, contact the credit bureau to have the error removed. 

Researching Lenders

Before working with a lender, do your research to make sure they are reputable and trustworthy. A reputable lender should disclose all loan costs, including interest rates and fees. In addition, make sure the lender is registered in your state and has a physical address and contact information that’s listed. Read customer reviews to see what the experience of working with the lender is like.A lender should not ask for money upfront or tell you a loan is guaranteed. If they do, it’s best to go elsewhere.

Comparing Interest Rates

Shop around to compare personal loans and their interest rates to find the best rate you can qualify for. When looking at interest rates, you should also consider fees. Some lenders charge a personal loan origination fee, which is a fee for the cost of processing your loan application. They may waive this cost for applicants with good credit scores. 

Applying for Personal Loan

To apply for a personal loan, you’ll need to provide some personal and financial information, such as your name and address, date of birth, employment details, and income. Some lenders may also require pay stubs, proof of employment, and your Social Security number. Make sure you know what documentation you need so you can gather it ahead of time. After you apply for a loan, you can check your personal loan application status online or by phone. If you see that your application has received a conditionally approved personal loan status, that means it has been reviewed by the lender and if you meet certain financial qualifications, you may be approved. 

The Takeaway

If you are on disability benefits, you can get a personal loan if you need one. However, be aware your disability benefits may count as income, and that having a loan could change your eligibility for Social Security benefits. Do your research before applying for a loan if you are on disability to make sure it’s the right choice for you.If you decide to move forward with a personal loan, Lantern can help you explore the options. Just fill out one simple form, and you can get offers from multiple lenders in our network to find the right personal loan for your needs. It’s quick and easy.

Frequently Asked Questions

Can you get a loan while on disability?
What are the loan options for people on disability?
Where can I find a personal loan on disability?
Photo credit: iStock/Koh Sze Kiat

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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