Disability loans: What they are and how to apply

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Disability loans can be useful tools to help bridge the financial gap between applying for government disability benefits and getting approval — which in some cases, can take months. However, disability loans have some potential risks, and these loans are not right for everyone.

If you are considering applying for a disability loan, you should be aware of what they are, who is eligible and factors that will make it advantageous or not for your financial situation.

What is a disability loan?

A disability loan is a personal loan you can use for necessary, everyday expenses like groceries, bills or mortgage payments if your disability has rendered you unable to work. These loans are used as a short-term financing tool for the few months it takes the Social Security Administration (SSA) to process your application, and they shouldn’t be used as a replacement for disability benefits.

Emergency advance payments

Before applying for a disability loan, see if you qualify for emergency advance payment. The SSA offers advanced disability payments to qualified individuals based on the severity of their condition, the type and how likely they are to get approved for disability benefits. Also known as presumptive disability or blindness payments, they’re used to help fund the gap for up to six months between the application and approval in emergency situations. Unlike disability loans, they only need to be paid back in the case of overpayment and don’t have interest rates.

You will need to prove you are currently in an emergency situation to qualify, and the payments will be paid back through subtracting the amount of emergency advance you received from the amount you’re set to receive in disability.

If you can’t qualify for emergency advance placement, you may want to look at disability loans.

Who qualifies for a disability loan?

Because a disability loan is a personal loan, approval will be based on the lender and your financial history. The eligibility requirements will vary from lender to lender. If you don’t meet the requirements, most lenders will give you the option to apply with a co-signer to increase approval odds. Your interest rate will also be determined by your credit history, so the better the score, the lower the interest rate.

Disability loans aren’t processed through the SSA like disability benefits are. Instead, disability loans go through a private lender. Therefore, they should only be taken out as a last-resort option and if you have a repayment plan in place to pay off the balance. Keep in mind that it may not be the best idea to rely on disability benefits as a way to pay off your loan, as the government could deny your claim.

Before applying for a loan, make sure you’ve already applied for disability through the SSA, as the loans are a short-term fix, not a long-term solution.

How does the government determine who qualifies for disability?

After completing the online application, the SSA determines who qualifies for disability benefits by using a process that takes 3-5 months to complete and involves the five following questions:

  1. Are you working? If you’re currently working in 2021 and your monthly earnings average at to more more than $1,310, you likely won’t qualify as a disabeld.
  2. Is your condition considered “severe”?  To qualify, your condition must be severe enough to limit your ability to work and perform basic physical work-related tasks for at least 12 months.
  3. Is it found on the list of disabling conditions? The SSA has a list of medical conditions that are considered eligible for disability benefits. If your condition is not listed, it is up to the SSA to decide if the condition is considered severe enough to qualify.
  4. Can you still do the work that you used to? If you can still complete your work with your medical impairment(s), you’re not considered eligible.
  5. Do you have the ability to do any other type of work? If you’re rendered unable to work, the SSA will consider factors such as your age, condition, education and past work experience to determine whether you have the ability to work another job. If not, you may be eligible for benefits, but if there’s other work you could successfully perform, you may be denied.

How to apply for a disability loan

You can apply for a disability loan through an online lender, bank or credit union. With an online lender, the application process is typically done completely online and can be the fastest and easiest way to receive the cash you need. However, if you’re a member of a credit union or have used a certain bank before, you may want to see if that financial institution offers discounted fees or rates to their customers.

Compare lenders before applying for a disability loan to find the best offer for your financial situation. Many online lenders now offer pre-qualification tools that allow you to see if you meet the eligibility requirements before applying to help you avoid a hard-credit check on a loan you may not qualify for.

Pros and cons of disability loans

While any kind of emergency loans can be a useful way to quickly get the cash you need when you need it, there are still drawbacks to be aware of before applying.

Pros

  • Convenience: With some lenders, you could get approved within minutes and can complete the entire application process from your home.
  • Options: You have a plethora of lenders, banks or credit unions to choose from when it comes to finding a loan that works for you.
  • Quick relief: If you’re unable to work and are waiting for your application to be processed, disability loans fill that gap.

Cons

  • Potentially high interest rates: Depending on your credit, you could get stuck with a high rate, potentially leading to high-interest debt down the road.
  • Pay-day risk: Many payday-type loans are marketed towards those with disabilities, but they typically come with astronomically high interest rates that can keep you in debt for years.
  • Short repayment terms: Depending on the lender, you may be given a shorter repayment period, meaning you could have a larger monthly payment with a shorter repayment term than with other types of debt.

Alternatives to a disability loan

If you don’t meet the eligibility requirements or don’t want to take out a long-term loan, you have alternatives to help fund the processing time of your disability application:

  • Government assistance: This includes programs like cash assistance, SNAP, welfare and unemployment benefits. You can apply for government assistance and see if you qualify with your state’s human service or social services agency.
  • Worker’s compensation: If you have a work-related injury or illness, you may be eligible for workers’ compensation. The process for filing a claim may differ from state to state, so research the process and complete all of the necessary steps. Also, depending on your state’s regulations, you may be eligible for additional disability benefits if your injury has deemed you unable to work.
  • Cash advances: A cash advance is a short-term loan that allows you to use your credit card to borrow the cash you need. This can be done at an ATM or through a bank that offers advances. Cash advances are a form of credit card debt, and the money you borrow will need to be repaid.
  • Disability insurance: Disability insurance pays a portion of your income if you are disabled and unable to work. There are two forms: Short-and long-term, which come with different amounts of coverage and waiting periods. You may be able to sign-up for an employer-sponsored plan or buy an individual plan from a broker or insurance company.
  • Loans from families or friends: As a last resort, you could ask a trusted friend or family member to lend you money for necessities. If you do choose this method, keep in mind that it could cause rifts in the relationship if you’re not able to pay them back when promised.

Bottom line

After considering all of your options, if you decide that a disability loan is a route you need to take, make sure you have a solid plan in place and the money to pay down the loan. It’s also important to make sure you do your research to find the lender that offers you the best rates and terms for your financial needs.

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Written by
Hanneh Bareham
Student loans reporter
Hanneh Bareham specializes in everything related to student loans and helping you finance your next educational endeavor. She aims to help others reach their collegiate and financial goals through making student loans easier to understand.
Edited by
Loans Editor