For most people, retiring means that they finally get to live a life of leisure without working. Your pension covers your main expenses, such as hobbies, groceries, and utilities. Life is good.
What happens if you have an emergency that requires more cash than your monthly pension can handle? Personal loans exist for those expenses that come up without a warning. However, the availability of loans for pensioners can make a stressful situation even more grueling.
Lucky for you, we are here to help. Let’s take a look at your options.
What is a Personal Loan?
If you are living on a limited income like a pension, it may be difficult to gain approval for a loan, especially a personal loan.
Personal loans are unsecured loans which means they aren’t backed up by collateral. This means that if you default on your loan, the loaner isn’t able to take your car, house, or other valuables in exchange for the unpaid amount owed. Because of this, loaners who deal in personal loans put a lot of emphasis on your income from the amount of money you make to its frequency.
Keep in mind that this type of loan isn’t a revolving one like credit cards for instance. Personal loans are a type of installment loan.
When you take out a personal loan, it is for a specified amount. Once you pay your loan in full, your account closes.
Your monthly payments will chip away at the principal balance with some interest added in. The interest rates differ between personal loans. You can try to find one with a fixed interest rate, which never changes. But that isn’t always an option. The term (amount of time the loan lasts) of a personal loan usually ranges between two and five years.
Personal Loans for Pensioners
Not sure where to start your search for a pensioner friendly personal loan? We’ve got you covered.
Here are our top tips:
Never Use Pension Advances
Before we get to the list of do’s, here’s a major don’t. Don’t borrow against your pension. Doing this pretty much gives full control to the lender you’re working with.
Here’s how it works:
Sometimes a lender will give you a lump sum payment if you agree to give them a chunk of your future pension. This is a tactic that’s used to make you sign the dotted line as quickly as possible.
There are also lenders out there who will ask you to open a joint bank account with the lender as the signer. The joint bank account scenario can keep you from being able to take money from your savings without their permission.
These types of loans are illegal in most places. And even if they’re legal in your area, they aren’t worth it.
For starters, a lump sum pension advance can put you in a higher tax bracket. A higher tax bracket will require you to pay more money in fees than you had before, making your limited income even more limited.
Who Are You Already Doing Business With?
Because it can be difficult for pensioners to become approved for personal loans, it is always good to start shopping around with a financial institution you already do business with. This can be a bank that you’ve had an account or credit card with for years.
Your history will make this type of lender more likely to help you with a loan. They are likely to have years’ worth of your financial data. They probably already know some of your payment habits.
If you are someone who has always made payments on time and kept a positive balance, you may already have a foot in the door. Speak with a representative at your bank and see what options might be available to you.
Remember not to take the first loan you’re offered. You should still check out the loan options elsewhere even after completing this step.
If your bank has the best offer after that, go with them.
Do You Have Time to Plan?
You can take out a personal loan for several different reasons. If it’s an emergency where you need money right away, you won’t have time for this step.
Are you weighing your options before remodeling your kitchen a few months from now? You should take your credit score into consideration.
In addition to your income, lenders will put your credit score under a microscope. So, if you have time to plan for your loan, you should take time to check your credit report for blemishes and then resolve them.
You can increase your credit score and lower your risk in the eyes of lenders by:
- Paying off old debts
- Disputing inaccuracies
- Paying credit card balances down (30% utilization or less)
- Use a secured credit card
According to Experian, a credit score that’s 700-749 is good. With a score in this range, you are likely to qualify for loans.
If your score is 750 or more, it’s excellent. This will enable you to gain approval and have the lowest interest rates possible.
A reverse mortgage is a good option when you are a pensioner with very little cash, but has excellent assets. Homeowners over the age of 60 are able to reverse the equity that’s in their property into cash.
Because this isn’t exactly a loan, you don’t have to worry about verifying your income. You also won’t have to make a repayment for the amount you receive.
You will, however, have to pay some interest and there might be fees. In the case of a reverse mortgage, the debt is repaid to the lender whenever you sell your house, move into a retirement home, or pass away.
Payday loans are among the best options when you’re in a pinch and need cash right away. Most people qualify for payday loans. All you have to do is show that you have a consistent source of income.
Payday loans are a type of personal loan. They don’t require you to put collateral down and your income is the main source the lender uses during the approval process.
They look to see if you can pay in the loan in full by your next payday.
If you are looking for a term that’s more long-term, a payday loan won’t work for you. Additionally, payday loans have high-interest rates. It’s important to pay them off right away to avoid having that interest add up.
USDA Housing Repair Loan
This loan is only useful if you need it for repairs on your home. There is also an income requirement for this one. You have to have a low income for approval.
The U.S. Department of Agriculture provides the USDA Housing Repair Loan. The interest rate on it is only 1% and you have 20 years to pay it in full.
The highest possible amount you can receive is $20,000 and there’s a possibility of a grant of $7,500 in addition to the loan amount. If you think you fit these qualifications, you can read more about the loan application process here.
Pensioner Loan Options with Government Assistance
There are government assisted loan options for retirees and people living off of their pensions. These options can work for you even if other lenders and financial institutions have turned you down.
They do require you to meet some minimum requirements though.
Pensioner Loans Scheme
This loan is for you if you’re a senior who is of pension age but isn’t eligible for the Age Pension. With the pensioner loans scheme, you can use the capital that’s tied up in your assets to generate more income.
The advance payment option is only available to pensioners who receive regular Centrelink payments. The advanced pay is usually for the amount you’d receive for either one or three weeks.
You’ll have to pay the full amount of this loan within 6 months. This payment advance doesn’t generate interest.
No Interest Loans Scheme
To apply for this scheme, you need to be the owner of a Government Centrelink pension card. As the name implies, this is an interest-free loan.
You can use it for things like medical emergencies, car maintenance, and household items. The most money you can receive from this loan is $1,200.
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