In the US, your credit rating determines your ability to take out loans. But what if you’re on government benefits? Will your limited income prevent you from borrowing money?
Contrary to popular beliefs, people on social security disability benefits can apply for loans. In fact, some lenders are more inclined to grant loans to people on government benefits. That’s because, unlike employment or business income, these benefits are guaranteed income.
What Loans Can You Get?
While getting a loan is possible, your credit rating still factors in on what type of loan you can get. Also, social security checks can’t be garnished to pay for loans if you’re defaulting. So not all credit institutions would be willing to lend you money.
Some of the loans you can get while receiving social security disability benefits are:
Some lenders specifically offer loans to borrowers with limited income and low credit rating. These are mostly short-term loans in small amounts. You can generally borrow from $100 to $1,000. Terms usually range from a week to a year.
The downside to this type of loan, however, is that the interest rates are a lot higher than other credit options. Instead of helping, it might even put you in bigger financial trouble. So you should only consider these types of loans as a last resort.
Payday Alternative Loans
With APRs capped at 28%, Payday Alternative Loans (PALS) is an excellent option for people with limited income. It’s a short-term loan that is regulated by the National Credit Union Administration.
It can be paid in either installment or lump sum, depending on the credit institution extending the loan.
To be eligible, you need to be a member of a federal credit union for at least a month. It also has no credit score or income requirements.
Because of the one-month membership requirement, this type of loan is not useful for emergencies.
For those receiving income other than their disability benefits, taking out a personal loan is possible too. It can be in the form of a pension or child support, as long as it’s a stable income. Without an alternative source of income, your chances of getting approved for personal loans are minimal.
Yes, you can take out a home mortgage even while on disability benefits. Banks will consider your disability benefits as guaranteed income. Thus, you have higher chances of getting the financing you need.
You can also be eligible for certain government housing programs. The FHA, for example, grants home financing as long as your debt-to-income ratio is within the acceptable range. But since your mortgage amount usually depends on your income, your housing choices might be limited.
Credit Card Cash Advance
If you have a credit card and haven’t extinguished your credit limit yet, you might be able to take out a cash advance. Credit card cash advances generally have lower interest rates than personal loans and PALS. So it’s a good option if you are in urgent need of funds but don’t want to pay high interest.
Will Taking a Loan Affect Your Disability Benefits?
According to the SSA, your loan will not be treated as an income. Thus, it will not reduce your disability or SSI benefits.
However, if you received money without a stipulation for repayment, the SSA will consider it a gift. The amount will be added to your SSI resource limit.
Also, you will have to spend all the amount you borrowed within the month. Otherwise, it will form part of your SSI resource limit too.
If you go over the SSI resource limit of $2,000 for individuals ($3,000 for couples), you’ll be ineligible for SSI benefits the next month.
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Victor Malca Law has over 25 years of litigation experience, we are the most trusted workers’ compensation lawyers in Florida. Our area of expertise is in representing injured workers on compensation benefit cases and disabled individuals claim social security disability benefits.
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ABOUT THE AUTHOR
Judy Ponio is a writer for Victor Malca Law P.A. and enjoys helping people with questions about social security, workers compensation, and other serious matters involving people’s livelihood. She is not an attorney and her writing should not be considered legal advice.