The answer to how to buy a car on disability has two radically different responses.
People receiving Social Security Disability Insurance (SSDI) have few legal restrictions but experience practical boundaries because of their limited monthly benefits.
Meanwhile, SSI recipients have a complex web of confusing rules to navigate that put their government benefits at risk if they make a mistake – in addition to more limited monthly benefits.
Finally, many people with disabilities have poor credit because subsistence-level income and high medical expenses are a recipe for financial stress. Therefore, other government programs supporting transportation needs could be the better avenue.
Cars On SSDI Disability
First, we explore how to get a car while on SSDI disability. Social Security Disability Insurance (SSDI) recipients paid FICA payroll taxes while working, so they qualify for higher monthly benefits. They do not have to worry about resource limits and special rules about autos.
SSDI Auto Loans
Asking where a person on SSDI disability can get a car loan emphasizes the wrong aspect of the qualification process. A better question is, how much money can you spend given your monthly benefit check?
Request a secured car loan (Sponsored Link) from an online lender network, choosing an affordable amount to borrow. Finance companies will favor a Debt-to-Income (DTI) ratio below 30%.
The average SSDI monthly benefit is about $1,400. A 30% DTI equals a monthly auto loan payment of $420. Therefore, someone with a seven-year loan at a 10% interest rate qualifies to borrow about $25,000 to buy a car.
SSDI Car Leases
You can more readily lease a car on SSDI disability because you pay for the use of the vehicle for a brief period rather than ownership, which can last a decade or more.
Leases often feature lower deposit requirements, smaller monthly payments, and fewer maintenance costs because you get to drive a newer vehicle.
Loans for SSDI recipients with bad credit are challenging to get. However, leasing offers higher approval odds because the lower debt-to-income ratio boosts weak borrowing credentials.
SSDI Car Dealers
Looking for neighborhood car lots that accept SSDI disability benefits is a poor strategy for getting a reliable vehicle. Most auto dealers do not offer financing in-house; instead, they refer customers to third-party companies.
In other words, a car dealer that accepts SSDI is merely selling a vehicle to people approved by the third-party finance company they recommend. Plus, this outside organization will consider traditional underwriting criteria.
- Debt-to-income ratio
- Credit history and score
Cars On SSI Disability
Next, we explore how to obtain an auto while on SSI disability. Supplemental Security Income (SSI) addresses the needs of adults and children with limited earnings and resources.
Most SSI recipients never paid FICA payroll taxes to fund the system. Therefore, the Social Security Administration requires them to follow specific rules.
- Countable resources cannot exceed specific limits
- $2,000 for an individual
- $3,000 for a married couple
- You must spend the government money on basic needs only
- You can own one automobile for transportation without restrictions
Transportation Assistance
Rather than asking how to get a car on SSI disability, question whether the government assists with other forms of transportation: trains, busses, taxis, or Uber and Lyft rides.
Free transportation grants for low-income individuals could make a car purchase unnecessary. People with disabilities frequently qualify for direct government support in this area.
- The Department of Developmental Disabilities might pay for transportation to day programs or support Uber rides through an Individualized Service Plan.
- Medicaid pays for non-emergency transportation to medical appointments.
- The Americans with Disabilities Act (ADA) requires public transit agencies to provide “complementary paratransit.”
Why allocate scarce budget dollars to buying a car you might not need?
SSI Auto Budgets
The next step before getting a car on SSI disability is to create a budget to ensure you can afford this transportation option. Compare the financial impact of a purchase to the alternatives: busses, trains, taxis, or ride-sharing subsidized by the government.
Monthly Benefit
Given the paltry monthly income, it will be challenging to afford a car on SSI. The maximum benefit is $841(at publication date), with possible supplements from the state ranging from $10 to $400.
Assume you receive $1,000 per month from SSI. A reasonable estimate of monthly auto expenses might be $600 on the low side, leaving only $400 for food, clothing, and shelter.
- Loan payment: $300 (30% DTI)
- Insurance premiums: $150
- Repairs & maintenance: $150
Car Loan Expense
Auto loans for SSI recipients need to be very small to make the monthly payment fit into your budget. Lenders consider your debt-to-income ratio and your credit score when making underwriting decisions.
A good car loan debt-to-income ratio is below 30%, meaning an individual receiving SSI benefits of $1,000 per month can afford a $300 payment.
If you qualify, a $300 car loan payment translates into a $15,000 vehicle, assuming a six-year term and a 10% interest rate.
Kelley Blue Book lists seven-year-old cars under $15,000 as of the publication date. All vehicles under this price range (except the Chevrolet Spark) have at least 70,000 miles.
Car Repair Expense
Car repair expenses could provide crushing budgetary surprises for many SSI recipients. A seven-year-old car with 70,000 miles has probably exhausted most manufacturer warranties.
DHS car repair assistance is extraordinarily scarce because demand exceeds supply by a wide margin. Therefore, set aside at least $150, or 15% of your SSI benefit check, for maintenance and repairs of your high-mileage used vehicle.
Car Insurance Expense
Car insurance for SSI recipients is another critical factor in the affordability equation. The national average premium to fully insure an auto is $150 per month, which you might have to spend if you finance.
In other words, the auto insurance premium might consume another 15% ($150/$1,000) of your monthly benefit check. Now add the cost of gas!
SSI Rules on Autos
Before getting a car on SSI disability, reviewing the Social Security rules on autos is critical. You do not want to jeopardize eligibility for these crucial benefits by making an unknowing mistake.
Reporting Requirements
The first rule is that you do not have to report buying a car to SSI if you use it for transportation and it is not a second vehicle. Otherwise, you must disclose the purchase.
Social Security requires that you report resource changes, which begs for a precise definition.
- Non-countable resource: one vehicle if you use it for transportation
- Countable resource: a second vehicle, even if used for transportation
Vehicle Value
The second rule is that there is no legal limit to the value of your car while on SSI disability. However, if you own a second vehicle, you can quickly encounter trouble.
- One auto: no limit on the Current Market Value (CMV)
- Second car: the Equity Value is a countable resource subject to limits
- $2,000 individual
- $3,000 married couple
Social Security defines the Equity Value as the CMV minus any encumbrances. An encumbrance could be a car loan balance or a lien against the vehicle.
Number of Cars
The third rule is no legal limit to how many cars you can own while on SSI disability. You can have as many autos as you like, provided their cumulative equity value does not exceed the countable resource maximum of $2,000 or $3,000.
However, one favorable twist exists in how Social Security tallies the figures.
| Vehicle | Equity Value |
|---|---|
| 1 | $25,000 |
| 2 | $500 |
| 3 | $500 |
| 4 | $250 |
| 5 | $250 |
Social Security excludes the vehicle with the highest equity value and includes all other cars. In this exaggerated illustration, the countable resources total $1,500.
Someone Else
A fourth rule allows someone else to help buy a car for someone getting SSI benefits. However, this generous individual must transfer the title as a gift.
Social Security rules on gifts specify that a car purchased by another person does not count as income, provided it is not a second vehicle.
If someone else is helping you buy a car, do not allow them to give you cash. Social Security will consider the cash gift as income, which could make you ineligible for SSI.
Down Payments
A fifth rule makes buying a car while on SSI disability extremely hazardous to your eligibility. The $2,000 or $3,000 countable resource limits make saving up for a down payment impossible.
However, setting up a specialized account is the legal way to save money for a down payment while maintaining eligibility.
SSI Specialized Accounts
Buying a car with a specialized account is ideal for SSI recipients to overcome the down payment and other obstacles outlined in this article while maintaining eligibility.
However, three types of accounts are devoted to this purpose and have unique pros and cons. Pay close attention.
Dedicated Accounts
Buying a car with a dedicated account might be permissible when the SSI recipient under 18 meets two critical criteria that limit utility.
- The person needs transportation for medical treatment, therapy, rehabilitation, job training, or education.
- The vehicle fits the approved example of a customized van, modified to accommodate a child’s wheelchair.
Dedicated accounts receive past-due SSI payments and do not qualify as countable resources. For instance, back pay after disability approves your case would be deposited here.
Special Needs Trust
A Special Needs Trust (SNT) allows someone else to help an SSI recipient buy a car without the restrictions of a dedicated account.
An SNT is a legal arrangement in which a person or a financial institution, called the trustee, holds and manages assets for the beneficiary. An SNT preserves the beneficiary’s eligibility for needs-based government benefits such as Medicaid and Supplemental Security Income (SSI).
An SNT is an excellent place to save for a down payment and pay the monthly auto loan installments.
ABLE Accounts
An Achieving a Better Life Experience Act (ABLE) account also permits another person to help someone on SSI buy a car. It does not restrict transportation uses or require customizations.
ABLE accounts support tax-advantaged savings programs that help disabled beneficiaries pay for qualified expenses, such as transportation. Social Security does not include the first $100,000 towards countable resources.
An ABLE account is a better place to save for the down payment because of the tax-favored treatment.
SSI Back Pay
You may be able to buy a car with SSI back pay but will be confronted with another set of confusing restrictions to navigate that vary based on the recipient’s age. Of course, you still must consider whether you can afford the vehicle and comply with SSA rules on autos.
Over 18
You can buy a car with SSI back pay for recipients over 18 but will find hidden limits on the amount you can spend.
The SSA exempts SSI retroactive payments for up to nine months after you receive them. These back payments come in three checks six months apart, meaning you can simultaneously hold only two installments in your bank account.
For instance, a recipient over 18 due $12,000 in back pay could spend up to $8,000 without exceeding the resource limitation.
Under 18
For recipients under 18, SSI back pay allows them to buy a car without spending limitations but with a customization restriction.
Dedicated accounts receive SSI back pay for younger recipients without a time restriction. However, the payee must use the funds for approved expenditures, such as a van customized to accommodate a wheelchair.
SSI Car Lots
Looking for car lots that accept SSI disability places the focus on the wrong element. As mentioned above, most auto dealers do not perform financing in-house. Instead, they refer customers to third-party companies.
If you need financing, you should make this arrangement before walking into a showroom or finding another transportation method.
Transportation assistance programs are a superior alternative. Safeguard your eligibility and preserve your limited income for priority needs such as food, clothing, and shelter.
Searching for a car dealer that accepts SSI is the least of your worries. The Social Security Administration rules on autos, spending, specialized accounts, and back pay make it too easy to lose these government benefits.
