If you’re close to retirement and need access to money, borrowing a Social Security loan against your benefits can seem like an attractive option. While there was a loophole in the system that allowed some recipients to do that, it’s no longer an option.

While it can be difficult to qualify for a loan based on your Social Security income, there are many borrowing options available. Whether you should borrow money depends on a number of factors, most importantly, your ability to repay.

Can You Borrow a Loan from Social Security?

The Social Security Administration (SSA) doesn’t allow you to borrow a loan against your benefits. However, before 2010, there was a loophole that made it possible for beneficiaries to start collecting benefits at age 62 and then repay them by the age of 70.

Once the money was repaid, they could refine and start collecting payments again. This loophole allowed many to borrow an interest-free loan. New policies introduced by the government don’t leave room for this option.

If you file for retirement benefits before you’re 70 years of age, you only have 12 months to suspend the benefits after you start receiving them. When you suspend your benefits, you’ll still need to repay the benefits you’ve received.  

Can You Borrow Loans Based on Your Social Security Benefits?

“If you're on social security and need a loan, you'll have to go through the same loan qualification process as anyone would,” says Teresa Dodson, debt expert and founder of Greenbacks Consulting. “Qualifying for a loan will be based on debt-to-income (DTI) ratio and credit score,” Dodson adds. 

When applying for a loan, lenders will ask for proof of income. However, your salary is not the only type of income you can show. Most lenders will also accept other sources of valid fixed income.

Some of the sources of income you can show include:

If you receive Social Security benefits, you can show it as a source of income when borrowing a loan from a financial institution. The loan amount you qualify for will depend on your total income, credit score, and other factors.

Loan Options if You’re on Social Security

Whether you’re facing financial hardship or have an unexpected expense you need help with, there are several loan options available if you’re on Social Security.

Personal Loans

While you can’t borrow a Social Security loan against your future benefits, you can apply for a personal loan for your needs. You can show SSI and Social Security benefits as proof of income during the application process.

You may also find it easier to qualify for a secured loan if you have collateral. This reduces the risk of the lender and makes it easier to qualify even with a lower income.

Pre-qualify for a personal loan with a few different lenders and carefully compare options to find the best possible rate and most affordable monthly payments.

Payday Loans

Payday loans are short-term loans that can help you cover unexpected expenses. You can qualify for these loans using your Social Security benefits, but keep in mind that these loans are very expensive.

You’ll also need to repay the loan in a lump sum by your next pay date, which can be difficult. If you do decide to borrow a payday loan, be sure to research well and ensure you’ll be able to repay the amount on the due date to avoid getting stuck in a debt cycle.

Cash Advance

If you have a credit card, you can get a cash advance against your available balance. It’s a quick and easy way to get money without a credit check, but it can be very expensive.

There are no grace periods on cash advances, so the amount you borrow will start accruing interest as soon as you borrow. Credit card companies also charge a higher APR on cash advances than normal purchases. You’ll also likely pay a processing fee.

Cash Loans

Cash loans are short-term loans that you can borrow instead of a Social Security loan. It’s a viable option for those who want temporary financial help. Cash loans are available to borrowers with bad credit scores and typically have lenient eligibility requirements.

While qualifying with Social Security income is possible, be aware that cash loans can have very high interest rates, so repayment may be challenging.  

Do Social Security Loans Impact Your Social Security Benefits?

The amount you receive when you borrow a loan is not considered income. This means that it won’t reduce your Social Security or SSI benefit.

However, keep in mind that if you borrow a loan and don’t spend the funds within that month, it will count towards the $2,000 resource limit for SSI if you’re an individual ($3,000 resource limit for couples).

Consider Your Budget Before Borrowing Loan on Social Security Income

While you can no longer borrow a Social Security loan against future benefits, there are other options available if you want to borrow money. Your loan options can be limited, especially if you have no other income apart from Social Security and SSI.

The borrowing options available are usually expensive, so it’s crucial to consider your budget and weigh your options before you submit your loan application. The last thing you want is to end up with unaffordable loan payments you can’t pay with your monthly benefit.

Consider borrowing from family and friends if possible if you’re facing financial hardship. Home equity loans may also be a viable option for your financial situation. You may want to see if you qualify for financial assistance for seniors.