There are many retired people who think it is hard for them to get loans. Even people waiting to retire feel the same. As they get old, they start brooding over their impending retirement. Hence, both retired and waiting to retire usually have the tendency to ponder over the after period and after-effects of approaching retirement.
They start calculating how much accumulated in the nest egg in retirement plans such as 401(k)s, individual retirement accounts (IRAs), or pensions. And they start looking for leverage options from wherever they can such as loans. They think that getting loans at and after retirement is hard and difficult.
However, it is not an unattainable job to get a loan at your retirement age. It is doable and definitely possible to get a loan when you retire. Hence, lay off hurting yourself from those ill thoughts of pulling some bucks from nest eggs or pensions. Because we are going to talk about the most precise ways of obtaining retired loans.
Eligibility & Criteria of Loans for Retired Persons
There are thresholds and qualifications in whatsoever you would apply for something — be it a job, credit card, or government benefits. Getting loan approval is not an exception to that. You can’t just go ahead and apply for a loan simply because you feel so. You need to be eligible to apply for a loan, which is called eligibility criteria.
Hence, it is better if you know your eligibility and the factors that decide your eligibility. The following are some important factors based on which your eligibility comes out.
There is already a pre-decided age limit when it comes to loans for senior or retired people. Basically, it starts when you are in your 50s, and maximum it goes to 75 years of age in terms of average.
So, when you seek loans from banks, it would urge them to check where you lie in the range of the age limit. This is one of the important deciding factors of your eligibility for retired loans.
The banks would like to know the difference in income streams post the period of retirement. In simple words, they would like to know if you have any other business to suffice the only income you will get from your pension.
If the source of current income after retirement is only the pension, they would impose a little higher rate of interest. Hence, your current income apart from the pension is a deciding factor for your eligibility for a loan.
Asset and Asset Authorization
The bank would also like to know the asset or property value you have under your name. The higher your property or asset’s value, the chances are high that they would accept your application. And in the event of your-not-being able to pay, they would possess the property from you. This is the saddest part of this financial deal. However, if you are able to authorize this setup of the deal, you are likely to proceed with loan accessibility.
Self-fund Retiree’s Income Stream
There are people who are called self-funded retirees. Their source of income might be such as investments, rental property, and/or retirement savings. Hence, the lenders might calculate their total or monthly income using the below-mentioned methods:
1- Self-Funded Retired Asset Depletion
In this method, banks will deduct the down payment (or value of collateral) from the total value or total accrued financial assets of the applicant. After that, they will appropriate for or take out 70% of the remainder so they arrive and then divide it by 360 months.
2- Drawdown on Assets of Self-fund Retiree
In this method, the bank will count regular monthly withdrawals from pensions or retirement accounts as income instead of as total assets.
After calculating and estimating self-funded retirees’ major income, the bank will add those parts into any pension income, social security benefits, annuity income, and part-time income from any part-time employment. In this way, the bank will estimate the total income of a person if someone is applying for retired loans as a self-funded retiree.
The Most Common Loans a Retired Person Can Opt for
There are many loans you can think of, however, we will only talk about the most common ones and the ones usually retired people are more comfortable with.
Before we dive into the variety of loans, you should keep in mind that there are two categories of loans- secured loans and unsecured loans. Secured loans are the ones where you put up collateral whereas, under unsecured loans, there is no such thing as collateral. However, under a secured loan, you will be paying comparatively high interest.
As regards loans for retired persons, we can discuss each of one them in the following manner. You can put your own thought and decide for yourself which one fits you.
This one is the most common not only for the retired person but also for anyone who wishes to apply for a loan. This is a category of secured loan in which you apply for a loan with a memorandum of foreclosure of your property to the bank.
In simple terms, you get the loan in return for the ownership of your property such as a home or land in the bank. Your home act as collateral for securing the loan. It comes under a secured loan as the bank has the assurance of having ownership of the home.
Home Equity Loans and HELOCs
If you have equity in your home, this will suit you. A home equity loan is similar to a mortgage loan and therefore it is also called a second mortgage. It is also called the equity loan, a home equity installment loan. As noted above, your equity will be used as collateral for the bankers.
You should have 15% to 20% equity in your home and a credit score of at least 620. Based on these two factors, your bank will decide if you qualify for home equity loans and home equity lines of credit (HELOCs) or not. These loans are secured loans. Hence, this is considered one of the best loans for retired seniors having equity in their homes.
Cash-Out Refinance Loans
You have an existing mortgage loan but you want extra loans. You can opt for this one. In this, you can apply for a new mortgage loan with cash-out refinance to pay for the existing mortgage loan, and the bank will set up a new mortgage. The new mortgage loan is larger than the previous one and hence, you can cash out home equity. And hence, its name is a Cash-Out Refinance Loan.
The extra amount thus pulled off becomes a secured cash loan. This one is better for those who have an existing mortgage loan and now want an extra top-up on it. Hence, this is one of the best loans for retired persons.
Reverse Mortgage Loan
In order to qualify for a reverse mortgage loan, you must be over 62 years old. With this loan, you can borrow against your home equity and receive a lump sum, fixed monthly payments, or credit lines.
In a traditional mortgage loan, the borrower repays the loan over time. However, in the reverse mortgage loan, the borrower taking the loan over the already possessing home does not necessarily repay the loan.
Consequently, what happens is that most reverse mortgage loans never get repaid. In the event of a borrower’s death, his/her heirs eventually sell off the property and repay the balance. The heirs can keep any excesses from the sale and settlement after the repayment.
U.S. Department of Agriculture Housing Repair loan
If your income falls under the low-income threshold and you are willing to meet the expenses for home repairs, you can check for the qualification of a Section 504 loan through the U.S. Department of Agriculture. The interest is as low as 1% and you can repay in 20 years. You can apply a maximum amount of $40,000 for the repair of your home.
You need to be a homeowner and should be residing in the house. Another qualification for this loan is that your total household(family) income has to be less than 50% of the locality’s median income. You or the applicant must be 62 years old or older.
Affordable Car Loan
A car loan is one of the best loans out there. Because it offers more competitive rates and is easy to get. The amount you obtain is secured by the car you are buying. In case your saving does not get affected, repayment through cash can beat or circumvent the high interest. In other words, paying in cash can save interest. On the account of unanticipated eventualities, you can sell off it to manage the funds.
Payday Loan: A High-Interest Loan
If you are ready to bear the brunt of high interest, payday can be a good option. A bank or lender will grant the loan tucked with high interest based on your income. You will show your income proof. The lender will then approve a portion of the amount of your payout you are going to get.
Once you get it, you need to pay it back within 30 days or even less than 30 days. Hence, for this reason, it is also short-term immediate loans, cash advance loans, or check advance loans. These are again good loans for retired persons.
FAQs Frequently Asked Questions
Q1. Can I get a personal loan if I am retired?
Yes, you can apply for a personal loan if you are a retired senior. A personal loan is a set amount of cash that you can borrow. You can use it for medical care, traveling, and other purposes.
Q2. How do retired people qualify for loans?
In order to qualify for retired loans, there are certain eligibility criteria. The bank will make sure your age falls within the range of 50 to 75 years. The lower limit might increase in some instances. They will check your income, monthly or annually. They will also check if you would agree to authorize the owner of the collateral if required.
Let’s Conclude Now
You can now notice it is not as difficult as it is assumed or used to be. You can check your status and see where you are coming from. Analyze which loans you require and which one suits you. Accordingly, you can choose. Hence, many alternative options are wide open nowadays. You can check if you have whole life insurance policies, you might be eligible for a loan against your policy.
Apart from the above-mentioned loans, there are many other loans. Your bank might make other options available based on your requirement and customize the loans for you. Because banks nowadays understand how to treat their customers and people looking for retired loans.
Hence, it is better to analyze properly and compare all the alternatives and check with your banks. And let your nest egg (pension) sit where it is.
- Meet our Author of Our Editorial Team, Susan Anderson. She is an experienced writer and financial expert who has been writing about credit cards, card offers, services, and other related topics for more than twenty years. With her in-depth knowledge on the matter and her ability to distill complex topics into useful information for readers, Susan has become a go-to source for reliable credit card advice. In addition to her work at the editorial team, she also contributes to major publications such as The Wall Street Journal and CreditCards.com. With her expertise and industry experience, she is able to provide sound advice on all aspects of credit responsibly while helping people save money in the process.
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