Disability loans: What are they and how do they work?

Disability loans can be useful tools for bridging the financial gap between applying for government disability benefits and being approved, which can take months. However, disability loans have some potential risks and are not right for everyone.

In general, people on a fixed or limited income may have trouble qualifying for any personal loan — and are likely better off considering alternatives instead. But if you are considering applying for a disability loan, you should be aware of how they work and if one will be advantageous for your financial situation.

Emergency advance payments

Before applying for a disability loan, see if you qualify for emergency advance payments. The SSA offers advanced disability payments to qualified individuals based on the severity of their condition, the type of disability they have and how likely they are to be approved for disability benefits.

Also known as presumptive disability or blindness payments, they 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 over payment, and you won’t be charged interest or fees.

You will need to prove you are currently in an emergency situation to qualify, and the advance payments you receive will be paid back by subtracting 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 or other alternatives.

How disability loans work

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 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.

Types of disability loans

Your options for disability loans include secured and unsecured personal loans from banks, credit unions or online lenders.

• Unsecured personal loan: Because collateral is not required, your approval and borrowing limit for an unsecured personal loan is greatly influenced by your credit score and financial health. This is the most common option offered by lenders, and you can expect interest rates from just under 7 percent up to 36 percent.
• Secured personal loan: With secured personal loans, the lender assumes a low financial risk, so this type of loan is easier to qualify for, and the borrowing limit tends to be high. They are much less common than their unsecured counterparts, and the lender can seize the asset as payment if the loan is not repaid.

Who qualifies for a disability loan?

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

Because a disability loan is a personal loan, approval will be based on the lender and your financial history. Your interest rate will largely be determined by your credit score and income. Borrowers with excellent credit will typically qualify for lower rates, and your options may be limited if you are unemployed or on a fixed income.If you don’t meet the lender’s eligibility requirements, you may be able to apply with a cosigner to increase your chance of approval.

• 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 five months to complete and involves the five following questions:

  1. Are you working? If you’re currently working in 2025 and your monthly earnings average is more than $1,550 — or $2,590 for applicants who are blind — you likely won’t qualify as disabled.
  2. Is your condition considered severe? Your condition must be severe enough to limit your ability to work and perform basic physical work-related tasks for at least 12 months to qualify.
  3. Is your condition 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 whether it is severe enough to qualify.
  4. Can you still do the work that you used to? You’re not considered eligible if you can still complete your work with your medical impairment(s).
  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 you may be denied if there’s other work you could successfully perform.

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, your application will likely be processed quickly, and it may be the easiest way to find funding. However, if you’re a credit union member or have used a certain bank before, you may want to see if your current financial institution offers discounted fees or rates to their customers.

Compare top personal loan lenders before applying for a disability loan to find the best offer for your financial situation. Many online lenders now offer prequalification 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

Disability loans can be useful if you have an immediate need for emergency funding to make ends meet. However, they should be a last resort if you are able to secure other forms of low-cost financing that won’t put a strain on your monthly budget.

Pros

• Quick funding: With some lenders, you can get approved within minutes and complete the application process from home.
• Multiple lender 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.
• May cover emergencies: 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.
• Payday 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 other types of debt.
• Risk of losing collateral: If you put up collateral and are unable to repay your loan, you risk losing that asset to the lender.

Alternatives to a disability loan

If you don’t meet the eligibility requirements or don’t want to take out a long-term loan, there are alternatives to help cover expenses while waiting for your disability application to be processed — or if you do not qualify for disability benefits.

• Government assistance: Includes programs like cash assistance, SNAP and 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: You may be eligible for workers’ compensation if you have a work-related injury or illness. The process for filing a claim may differ from state to state, so research the process and complete all 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 form of credit card debt, and the money you borrow must be repaid. But the interest rate for cash advances is much higher than your regular credit card APR, so this can be an expensive option. With that in mind, cash advances are accessible and can be done at an ATM or through a bank that offers advances.
• 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 choose this method, keep in mind that it could cause rifts in the relationship if you’re unable to pay them back when promised.

Bottom line

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