Can you get a loan if you are retired?

Why would you get a loan in retirement?

As a retiree, there may be many reasons to consider a loan. You might need help covering certain bills, helping out a family member or to make a large value purchase.

Research from Independent Age shows that one in seven people over the age of 65 are using loans to make ends meet due to the rising cost of bills, food and fuel.

You could take out a retirement loan for:

• A trip away: You may want to take a trip down memory lane and visit your old stomping ground or spend some time visiting family. A loan could help cover your accommodation and travel costs
• Home improvements: Perhaps you need to fix the roof or get a new boiler and need to borrow some funds to help pay for this
• Supporting family members: You might want to help a family member in need – perhaps they need help with their rent or other essential bills. Or perhaps you want to treat your grandchildren.
• Car repairs: Maybe you need to replace your car tyres, fix a crack in the windscreen, or even replace your car.
• Consolidating debt: If you have existing debts to repay, a loan can help you consolidate them into one monthly, manageable repayment

What types of loan are available if you are retired?

There are several different types of loans available if you are retired. But, as pensioners, you’ll need to check you meet the eligibility criteria before applying.

Understanding loan eligibility for retirees

When assessing a pensioner’s eligibility for a retirement loan, lenders will consider a range of factors. These include:

Affordability

Loans should be affordable. Now that you are retired, you probably won’t receive a regular salary from employment.

As such, lenders may be more concerned that you won’t be able to afford your loan repayments.

They may ask for evidence of any current income and examine your outgoings and debt commitments to check if your repayments would be affordable.

As a pensioner, lenders will usually accept the following types of income in retirement:

• Pension income
• Rental income from buy-to-let properties you own
• Dividends from investments
• Income from a part-time job

The greater your income (and the lower your outgoings), the more likely you are to be accepted for a loan.

Credit score

Lenders will check a borrower’s credit score and assess credit risk to help them decide whether they are willing to let you borrow and at what interest rate.

If you have a good credit history, this shows you’ve been responsible with credit in the past and are more likely to be accepted for a loan.

If you have poor credit, you might find it harder to get accepted for a loan, or you might have to borrow a smaller amount. Interest rates can also be several times higher compared with someone who has good credit.

Age limitations

Age limitations can vary depending on the lender. You might find there is a maximum age limit in place for when you apply for the loan and another one for when the loan term ends.

These limits are typically around 70 to 75, but some lenders might have higher limits. With Nationwide, for example, you can apply for a personal loan up to the age of 79.

Your assets

If you want to apply for a secured loan, you’ll need to use an asset, such as your home, as collateral.

If you are unable to repay the loan, the lender could sell your asset to recoup its money. It’s important to consider this carefully before applying for a secured loan.

If you use your home as security, the lender will look at how much equity you have, rather than the overall value. Equity is the amount of the property you actually own.

What should you consider before applying?

Before applying for a loan in retirement, it’s important to think about the following:

Assess your finances

Go through your bank statements to remind yourself of how much income you have each month and how much you spend on household bills, debt repayments and other expenses.

Consider whether you can realistically afford to take out a loan and whether your loan repayments will be manageable. It’s crucial to borrow only what you can afford to repay.

Are there any alternatives?

Think about whether you could get access to funds another way. For example:

• Economise: Look at where you can make cutbacks to save the money you need. Reduce the number of times you eat out each month or see if you can switch to a cheaper broadband deal or car insurance provider, for example
• Sell something of value: If you have any antiques or jewellery, an old car, any collections such as old football programmes or vinyl records, it could be worth getting them valued and selling them for cash if you can bear to part with them
• Downsize: You could also look into selling your home and moving into a flat to release some of the equity in your property. If you are renting a large family home, consider a cheaper flat
• Pension drawdown: This is where you take money from your pension pot to use however you like. You can withdraw up to 25% of your pension pot tax-free, but keep in mind that this will reduce the overall value of your retirement savings

Check eligibility requirements

Always check the eligibility requirements before you apply for a loan for retired individuals. Find out whether there are any minimum income requirements, maximum age requirements and any other criteria that you need to qualify for to be accepted.

Many lenders offer eligibility checkers that let you see how likely you are to be accepted for a particular loan. Because they only use a soft credit check, this won’t affect your credit score.

Review your credit report

It’s also worth getting hold of a free copy of your credit report with the three main credit reference agencies, Experian, Equifax and TransUnion. Check whether there are any mistakes on your report and if there are, get them corrected.

If your credit score is low, it’s worth taking steps to improve it, such as paying bills on time and spacing out credit applications.

What are the risks of taking a loan in retirement?

Loans for retired individuals can come with several risks. For example:

• You might struggle to repay the loan: If you can’t repay your loan, you could be charged late payment fees. You also risk damaging your credit score and potentially losing any asset you’ve used as security
• Potentially higher interest rates: If your retirement income is considerably lower than the amount you earned when you were employed, you might pay a higher interest rate on your loan
• Your family’s inheritance could be affected: If you die before the loan is repaid, the lender will look to recover what they are owed from your estate. This could reduce any inheritance for your family

Should you seek financial advice?

Speaking to an independent financial adviser may be worth considering if you are not sure whether applying for a loan in retirement is right for you, or if you’d like to understand more about your options.

It’s particularly prudent to do this if you’re thinking about an equity release scheme as these are not always straightforward and can lead to inheritance issues.

A financial adviser can assess your personal and financial situation and help you to come up with the right solution for you.

Loans in retirement: FAQs

What if you die before repaying the loan?

If you die before repaying your loan, and it was in your name only, the lender will look to recover what they are owed from your estate (your total cash and assets). This can reduce the amount of inheritance left over for loved ones. If you have no assets to your name, it’s unlikely the lender will go after your family to repay the debt.

If you’ve taken out a joint loan, the surviving partner will need to repay the amount owed.

Is there an age limit on applications for a loan?

Many lenders will impose an age limit on loan applications, but requirements will vary depending on the provider. Some will have a maximum age limit at the time of application and some will have a maximum age limit for when the loan ends.

Should you drawdown on your pension instead of a loan?

Once you reach the age of 55, you can usually start to take money from your pension pot. You can typically withdraw up to 25% of the amount in your pension as a tax-free lump sum. This is limited to a maximum of 25% of your available pension lifetime allowance (currently £1,073,100).

You then have six months to start withdrawing the remaining 75% of your pension funds, but this time pension taxation applies. You can take some or all of this as cash, or you can buy an annuity or invest it. Annuities pay you a guaranteed income for life.

It’s sensible to seek pension advice if you’re thinking about pension drawdown and discuss your pension options.

Can you have loans on your pension?

A pension-backed loan lets you borrow money against the amount in your pension fund, working in a similar way to secured loans. These loans are usually offered by specialist lenders but they can be expensive and come with risk, so it’s best to seek professional advice first.

Summary: Getting a loan in retirement

Applying for a loan as a pensioner could give you access to funds to help in your retirement, whether you’re looking to pay for essential home improvements, treat yourself to a break away, or provide financial support to family members.

But it’s important to be sure you can afford your monthly repayments and only ever borrow an amount that you are confident you can pay back on time.