As a retiree, it can feel like you are no longer an acceptable candidate for a loan because of your age or financial situation. However, it may be possible to borrow against your pension or property.
There are plenty of lenders who are willing to lend to older borrowers, depending on whether or not they meet certain criteria. This could be your age at the time of borrowing, or when the repayments would be met. It could also be a question of your pension income and other assets.
Use our guide to find out what lenders look for in retired applicants, and whether you're likely to be accepted for a retirement loan.
Age requirements when applying for a loan
One of the conditions a lender may assess before approving your loan application is your age. This could be the age you are when the loan is taken out or the age cap of when the loan is repaid.
The reason for this is retirees pose a higher risk of borrowing than those in full-time employment, because their monthly income is significantly less. Other aspects, such as health conditions or higher expenses, can also play a part.
However, each lender has a different policy when it comes to their age limit, with some lenders being more flexible than others. Therefore, it’s worth doing your research beforehand to rule out any lenders who may not be suitable for your borrowing needs.
Additionally, if the age limit depends on when the loan term ends rather than begins, a simple solution may be to take out a shorter repayment plan.
Alternatives to taking out a loan
Rather than borrowing against a pension or equity, you may wish to use your other assets to raise the money you need.
One of the most common alternatives is a pension drawdown. This allows you to take money from your pension pot to invest or spend as you see fit. You can take up to 25% of your pension savings tax-free. However, whatever you take will affect the overall value of your pension.
You may be able to raise some cash by selling stocks and shares. However, if you’re relying on these as a source of income in the future, or as part of your family inheritance, you won’t benefit from future gains by selling now.
While there are other options available regarding loans for retired people, these can come with a greater risk and can make your overall income unpredictable.
Types of loan suitable for retired people
When it comes to taking out a retirement loan, you have several options depending on your financial needs and assets. This could be borrowing against your home equity or receiving a loan based on your pension income.
Each loan type comes with its benefits and drawbacks, so it’s important to research and assess which one is best suited to your circumstances.
If you own a property, you could get approved for a secured loan for pensioners.
A secured loan is a type of personal loan which is held against your assets, such as your home. It is paid back over a series of monthly repayments and determined based on your income.
The interest rates for secured loans are often lower than unsecured loans. This is because it poses less of a risk to lenders as the loan is secured against your assets. However, this also means your home could be at risk if you cannot meet the repayments. This security does mean lenders are more likely to approve your application, even if you have bad credit.
If you don’t want to borrow against your home, you could be approved for an unsecured loan, even if you are retired.
Unsecured loans are offered based on your credit history and income, and repaid through monthly instalments over a set period. However, as the lender has no collateral if you fail to meet the repayments, you could face higher interests or shorter loan terms when you apply.
It’s also vital to ensure you can meet the repayments of your unsecured loan and still comfortably live off your remaining pension. Because of this, a lender may look more favourably on your loan application if you have an additional source of income, such as a part-time job or rental revenue.
Another option to raise the money you need for retirement is to remortgage your home. This allows you to borrow money against the value of your home by replacing your existing mortgage plan with a new lender.
It is likely that since you first took out a mortgage, the value of your home has increased. This value minus your outstanding mortgage is known as your loan-to-value rate, which could be improved enough to take out a loan with lower repayments than your current mortgage.
However, while you might find a better rate than your existing mortgage, there are a number of fees to consider which could make this more expensive in the long run. For instance, you may face an early repayment fee on your current mortgage for the remaining interest.
Borrowing against equity is similar to a remortgage, only there are no repayments to make. This is because you are essentially selling part of your home to release the funds.
Equity release is well suited to retirees, as you can only qualify if you are a homeowner and over 55 of age. There are two types of equity release you can choose from, these are:
Lifetime mortgages: You can take out a mortgage against your current property, but instead of repaying the retirement mortgage in instalments, you can let the interest roll up. Then, the total amount borrowed and the accumulated interest is paid back in full when the house is sold. You can also keep a certain percentage of your home value separate from this for inheritance.
Home reversion: This is where you sell part of your home to a lender to cover the money you want to borrow. You can still keep your home and even keep some of its value for inheritance. Then, upon your death or if you go into long-term care, the property is sold. From the proceeds of the sale, the lender recoups the money, and the remaining balance would be available for inheritance purposes.
Things to consider when applying
Before taking out for a retirement loan or remortgage, it’s essential to assess your finances to ensure you can borrow money and still live comfortably. Here are a few things to watch out for when applying:
- Check your credit report and score to ensure there are no errors or misinformation to improve your chances of being approved
- Only borrow what you need at the shortest repayment plan you can afford to keep interests low
- Ensure there are no age restrictions which could prevent you from getting a loan with a lender before applying
- Calculate your living costs and other future expenses to ensure you’ll still have enough money left over after your monthly repayments.
Borrowing against a pension is possible as long as you are aware of your repayments and eligibility. At Norton Finance, we’re on hand to help you understand your options and secure a loan which works for your situation. Explore our wide range of loan products today.