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Loans for people on disability with bad credit

Being on disability or having poor credit doesn’t automatically disqualify you from qualifying for a loan. Here’s what you need to know about non-traditional forms of financing.

Vivian Tejada
June 11, 2024

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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.

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. 

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. 

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. 

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.

Payday loans

Payday loans are short-term loans that aren’t usually recommended because they come with high-interest rates and fees – upwards of 300% APR. While these loans can seem appealing to individuals on disability who are having trouble making ends meet, they should only ever be considered as a last resort. 

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.

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 lines of credit 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. 

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 can pay back your HEI any time throughout a 30-year term, or when you sell your home.

Financing alternatives for non-qualifying borrowers

Depending on your financial situation, you may not want to take out an interest-bearing loan or put your home up as collateral. You could also be approved for a loan but not for the amount you need. In that case, you may want to consider the following options. 

Private grants

Private grants are financial rewards given to people through private organizations. 

They can be good funding options for people with disabilities who need help with a variety of needs related to their conditions. Here are a few notable grants awarded to individuals with specific health conditions and disabilities:

  • The American Diabetes Association: Provides grants to people with diabetes to help cover the cost of insulin and other medical supplies. 
  • The Arthritis Foundation: Provides grants to individuals with arthritis to help cover various medical expenses such as physical therapy and adaptive equipment.
  • The Hearing Health Foundation: Provides grants for individuals who live with hearing loss to help cover the cost of hearing aids and assistive listening devices.
  • The National Multiple Sclerosis Society: Provides grants to people with multiple sclerosis to help cover the cost of adaptive equipment, home modifications, and other medical needs. 
  • The National Federation of the Blind (NFB): Provides scholarships to blind and visually impaired individuals pursuing higher education or vocational training. 
  • The Autism Society: Provides financial assistance to individuals and caregivers of individuals with Autism Spectrum Disorders (ASD). These funds are meant to support educational programs, therapy, as well as other financial needs. 
  • The United Cerebral Palsy (UCP) Association: Provides grants to individuals with cerebral palsy and other developmental disabilities that need help paying for accessibility modifications, housing, and education. 
  • The Reeve Foundation: Provides grants to individuals living with paralysis and spinal cord injuries to support initiatives that improve their quality of life through adaptive equipment and medical care. 
  • The Arc of the United States: Provides grants to individuals with intellectual and developmental disabilities to help them pay for housing, caregiving arrangements, and vocational training.  
  • The Epilepsy Foundation: Provides grants for individuals living with epilepsy to help cover access to health and wellness programs, mental health services, and stress management. 

Government assistance programs

In addition to private grants, you could also explore government assistance programs. Here are a few programs you can look into if you’re disabled and need extra money:

  • Medicaid: Allows low-income families and individuals to access basic healthcare coverage.
  • Low Income Home Energy Assistance Program (LIHEAP): Allows low-income households to apply for funds that help cover home energy bills.
  • Unemployment Insurance: Allows out-of-work employees to receive a portion of their previous salaries as long as they haven’t lost their positions through their own actions. 
  • Supplemental Nutrition Assistance Program (SNAP): Also referred to as food stamps, this program helps low-income individuals purchase groceries at certain locations. for
  • Housing Choice Voucher Program (Section 8): Allows very low-income families as well as the elderly and the disabled access to housing assistance. 

Final thoughts on taking out a loan while on disability or with bad credit

Navigating financial difficulties while living with a disability or poor credit can be frustrating. Luckily, traditional financing isn’t the only way to access funds.

Government programs and private grants can be great funding options for borrowers who don’t qualify for conventional forms of financing. However, the amount of financial assistance you’re able to receive may be limited.  

If you need a large amount of financing a home equity loan, line of credit, or HEI may be a better option – as long as you are comfortable using your home as collateral. It’s also important to consider how receiving more money could impact your disability benefits. 

Access additional funds with a Home Equity Investment from Point. Qualifying homeowners benefit from no monthly payments, flexible credit evaluations, and the ability to use the funds as needed. Explore Point’s HEIs here.

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