Loans for people on disability with bad credit

Loans can feel like a lifeline when you need funds for unexpected expenses, medical bills, or daily essentials. Yet, securing financing can feel impossible, especially when you're on disability and have bad credit. Borrowers often think they won't be approved for a loan; however, plenty of options are available to non-traditional borrowers.

In this blog, we’ll discuss everything you need to know about qualifying for a loan while receiving disability benefits (even with an imperfect credit score).

Qualifying for a loan while on disability benefits

You can qualify for a loan while receiving disability benefits, as they are considered a legitimate source of income. Generally, you can apply for any type of financing and will be subject to the same application process, loan amounts, and terms as everyone else.

The Equal Credit Opportunity Act (ECOA) protects borrowers from discrimination and promotes equal access to credit opportunities for disabled individuals seeking loans, mortgages, and credit cards. Lenders are prohibited from approving or denying credit or setting borrowing terms based on disability status, and they must provide clear reasons for any credit denials.

5 types of loans for people on disability with bad credit

While there are no loans available exclusively to individuals with disabilities, many lenders specialize in providing loans for people with bad credit or non-traditional income. These loans often have more flexible repayment and qualification options than traditional forms of financing.

Online personal loans

Personal loans for people individuals with bad credit are available in smaller amounts or at higher interest rates. Some lenders may allow you to bring on a co-signer if you don’t qualify for a personal loan on your own. Personal loans can be used for many reasons, such as unexpected medical expenses, debt consolidation, or another life expense.

Pros:

• Can be used for a variety of expenses
• Quick access to cash
• Some lenders allow co-signers

Cons:

• Higher interest rates for bad credit
• Monthly payments required
• May be hard to qualify without a co-signer
  

Credit union loans

Credit unions are community-based financial institutions that offer credit at lower fees and more competitive rates than traditional banks. They typically provide personalized services to individuals who may have a harder time obtaining conventional loans and lines of credit.

Many credit unions consider non-traditional factors such as alternative income sources and credit histories when evaluating credit applications. This can make it easier for individuals with disabilities or poor credit to access funds. Some credit unions even offer specialized loan programs or financial counseling services to help members manage their finances.

Pros:

• Lower interest rates than traditional banks
• More flexible for non-traditional income
• Personalized support and financial counseling

Cons:

• Membership required
• Approval may still depend on credit history
• Loan amounts may be smaller than banks

Peer-to-peer lending

Peer-to-peer lending allows individuals to borrow from each other through online platforms. Also known as social lending or crowd lending, P2P lending provides access to a diverse pool of investors who set their own criteria.

Similar to credit unions, P2P lenders may offer competitive rates and terms to non-traditional borrowers. They are also more willing to consider alternative income streams, making P2P lending an inclusive borrowing option for individuals with disabilities.

Pros:

• Competitive rates for non-traditional borrowers
• Flexible approval criteria
• Online, convenient application process

Cons:

• Interest rates vary widely
• May require strong credit for best rates
• Funds may take longer to disburse than personal loans

Home equity loans and lines of credit

Tapping into home equity may be a long-term financial solution for homeowners living with disabilities. Home equity loans and home equity lines of credit (HELOCs) allow borrowers to access funds by leveraging the equity they’ve built in their homes. Home equity financing products typically offer flexible repayment terms and lower rates than unsecured forms of financing. There may even be tax benefits associated with your home equity funds if you allocate them for home improvements.

Pros:

• Lower interest rates than unsecured loans
• Large loan amounts possible
• Tax benefits may apply if used for home improvements

Cons:

• Monthly payments required
• Requires sufficient home equity
• Risk of losing your home if you can’t pay

Home equity investments (HEIs)

Another way to tap into your home equity is through a Home Equity Investment (HEI). An HEI allows you to borrow against your home equity without having to make any additional monthly payments. HEI funds are disbursed in a lump sum to the borrower in exchange for a percentage of their home’s future appreciation.

Its flexible lending criteria makes an HEI a great financing option for homeowners who receive disability assistance or have less-than-ideal credit. You'll need sufficient equity and a credit score above 500. There are no income requirements.

You can pay back your HEI at any time throughout a 30-year term. Many homeowners choose to repay their investments via home sale, refinancing, or using another source of funds, such as cash savings or HELOC.

Pros:

• No monthly payments
• Flexible approval criteria (no income requirement, 500 credit score)
• Can be used on second homes or investment properties

Cons:

• Requires sufficient equity
• Repayment is tied to home sale or end of term
• You share a portion of your home’s future appreciation

Grants and assistance resources

If loans aren’t the right fit, there are programs that provide financial help without the need for repayment. Many state and local agencies, as well as nonprofit organizations, offer grants to assist people with disabilities in covering living expenses, medical bills, or home modifications.

A great place to start is 211.org, a free service that connects you to local resources, including:

• Disability assistance programs
• Emergency financial aid
• Housing support and utility help
• Food, medical, and mental health resources

Visiting 211 can help you find grants and support tailored to your specific needs, giving you financial relief without taking on additional debt.

How can taking out a loan impact your disability benefits?

Acquiring additional funds can impact your eligibility status depending on the amount you borrow and the type of disability benefits you receive.  

Needs-based disability benefits

Needs-based programs, like Supplemental Security Income (SSI) benefits or Medicaid, typically have strict income and asset limits.

Funds obtained through a loan or line of credit might count as income or assets. This could reduce or suspend your benefits until your financing vehicle is fully spent or repaid.

Work-based disability benefits

Disability benefits based on work history, such as Social Security Disability Insurance (SSDI), aren’t usually affected by additional funds. Loans and lines of credit aren’t counted as additional income and have no direct impact on benefit eligibility for work-based disability benefits.

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The bottom line

Getting access to cash while on disability and managing bad credit can feel challenging, but there are options available. Remember, the right choice is the one that balances your immediate needs with a plan that keeps you secure for the future.