Social Security disability benefits are available to people who are unable to work because of a medical condition. Social Security officials determine the monthly benefit according to a formula that includes factors such as how many years the recipient worked. The payments are modest, usually starting at around a few hundred dollars a month. However, it is possible for people on Social Security disability payments to get a loan.
Challenges
Although certain loans are available, many creditors are reluctant to loan money to people who have few assets and list Social Security disability as their only income. That's because federal bankruptcy laws protect Social Security disability payments, according to the financial website Bankrate. A federal bankruptcy court cannot force a debtor to use Social Security disability benefits to repay creditors in bankruptcy. Some lenders may feel that makes recipients of disability benefits a higher credit risk compared to people with other forms of regular income.
Considerations
Proof of income is usually a requirement for a loan, and disability payments may not be enough to qualify an applicant for standard, long-term loans such as installment loans or an auto loan. However, someone receiving disability payments may have other regular income from sources such as real estate investments or retirement plans. The presence of other recurring income could make approval easy on some loans.
Collateral
A person receiving Social Security disability payments could also qualify for a loan based on current deposits at a bank or credit union. Such loans are risk-fee for the bank, which will freeze the amount on deposit until repayment of the loan. For example, someone with $20,000 in cash retirement savings could possibly borrow the entire amount -- or nearly all of it -- despite limited income from Social Security disability benefits.
Alternatives
Other types of loans are also available, but some are riskier than loans from banks and credit unions. Some high-risk lenders offer loans based on any type of regular income -- even Social Security disability benefits. The loans are often available without credit checks, and the lenders don't bother determining if the applicant can afford the loan based on income from disability benefits. Payday loan companies and car title lenders are among the lenders offering such loans. However, the loans often feature interest rates at more than 300 percent and can lead to excessive debt.
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