As you reach retirement, your lifestyle changes and so do your finances. Your income will likely consist of CPP, Old Age Security (OAS) and any private pension and/or investment income you have. But what happens when it’s not enough and you need a loan? You may find that most lenders require you to be actively employed – but there are some lenders willing to work with an alternate source of income such as a pension.
Compare personal loans for people receiving a pension
Before applying for a loan, it’s best to double check with a provider to see if they consider CPP, OAS and/or private pensions as a form of income.
What types of retirement situations are considered?
Self-funded retirees. If you earn income from investments, such as rental properties, or a private pension, you’re a self-funded retiree. When applying for a loan, make sure you have as much proof of your assets and income as possible to prove to the lender you’ll be able to manage the loan repayments.
Retirees receiving CPP and OAS. Be sure to check the eligibility criteria of the lender – not all consider CPP and OAS as a form of income. Having a private pension on top of CPP and OAS will help prove that you can manage repayments.
Retirees who work part-time. If you have steady employment – even if it’s only part-time – this income will be considered by lenders. Remember minimum income criteria may apply, so check this before submitting your application.
What types of income are acceptable?
When you borrow money, having a form of income is necessary since you have to be able to prove that you can pay back the loan. Lenders want to see that you can comfortably pay back your loan and still pay for necessities in life such as food, housing and utilities.
What forms of pension income is considered by lenders?
CPP. Throughout your working years, you will have contributed small amounts to your Canada Pension Plan. Some employers also contribute to your CPP, which will likely mean you’ll receive a higher amount than someone who’s employer did not contribute.
Old Age Security (OAS). Old Age Security provides additional retirement income to people of a certain age after they retire from their careers.
Private pensions. You may have also contributed to a private pension, either through your job or into a private RRSP. You’ll still receive both CPP and OAS in addition to being able to withdraw from your private pension.
There are a few lenders who will consider these benefits as a form of income when evaluating your ability to repay a loan.
Different loan types available to retirees
There are a few different types of loans available to retired seniors, including:
Secured personal loans. Secured loans require you to provide some form of collateral – like a car or equity on your home – and in return you’re usually able to obtain a lower interest rate. Providing collateral makes you a less risky borrower, however your collateral can be taken from you should you fail to make your repayments.
Unsecured personal loans. You don’t have to attach an asset to an unsecured loan, and you can use this loan type for any legitimate purpose. However, since it’s a riskier type of loan, you usually won’t get as low an interest rate as you would on a secured loan.
Peer-to-peer loans.Peer-to-peer loans are funded by regular investors rather than banks or institutional lenders. An online marketplace will connect you with lenders who may finance your loan. You can usually get competitive interest rates and favourable loan terms.
Car loans. If you’re looking to purchase a new or used vehicle, you can consider a car loan. These types of loans offer competitive interest rates because the vehicle you purchase is used to secure the loan.
Short-term loans. If you have bad credit or need money quickly, a short-term loan might be worth considering. Also known as payday loans, these types of loans are famous for their excruciatingly high interest rates and their relaxed eligibility criteria.
Bad credit loans. There are still personal loan options if your credit is less than perfect. Some lenders will offer loans up to $5,000 or more to those with bad credit. Keep in mind you will often pay high interest rates with bad credit loans, since you’re considered a riskier borrower.
Debt consolidation loans. If you’re looking to consolidate your debt from multiple places into one single place, some loan options are specifically tailored for the purpose of debt consolidation.
Linda and Grant, a retired married couple
As a couple, Linda and Grant receive $1,500 in retirement income each month. They’ve paid off their house and have a small source of additional income from a rented-out investment property. While their payments are enough to support their lifestyle, they don’t have the means to make additional larger purchases. When their car stopped working, they considered taking out a loan to buy a replacement.
Option 1: They looked into an auto title loan to purchase a vehicle. Since an auto loan is a secured loan, they found they could get a competitive interest rate.
Option 2: They also looked into an unsecured loan option so that their car couldn’t be taken away in the event they fell behind on loan repayments. They looked into peer-to-peer loans, which can also come with competitive interest rates.
Ultimately, Linda and Grant decided on a peer-to-peer loan because they felt more comfortable borrowing money without having to attach collateral.
Once you’ve compared lenders that accept pension, OAS and/or investment income as forms of acceptable income, you’ll need to make sure you meet the other eligibility criteria. You’ll also need to gather documents and then apply online. You can apply online for a loan in the table above by clicking the green ‘Go to site’ button, where you’ll be securely redirected to the application page.
While eligibility criteria can vary between providers, it usually includes:
Be a Canadian citizen or a permanent resident.
Have a permanent address.
Be at least 18 years of age, or the age of majority in your province or territory.
Have a working bank account.
Meet the minimum income requirements.
Meet any minimum credit score requirements.
Personal information including your name and contact details.
Financial information regarding your pension payments, OAS, assets, debts and open credit accounts.
Even if you’re no longer in the workforce, you can still apply for a loan as a retiree. Many lenders accept investment income, OAS, CPP and private pensions as forms of acceptable income, which means if you’re able to make your loan repayments and you meet the other basic eligibility requirements, you could be approved for the funds.
Personal loan applications usually take around 10-15 minutes to complete if you have all of the necessary information on hand.
Yes. Personal loan applications are counted as hard inquiries on your credit report. Inquiries play a factor in your overall credit score, with each inquiry knocking around 5 points off your score. Lenders may also view too many inquiries as a red flag. To keep your credit in good standing and improve your chances of approval, limit the number of loan applications you submit to one or two, and wait for an answer from lenders.
Most lenders have customer service lines you can call to ask specific questions. Check their website for contact details. If you already have a loan with the lender, check your loan contract thoroughly and contact the lender if you still have questions.
Emma Balmforth is a producer at Finder. She is passionate about helping people make financial decisions that will benefit them now and in the future. She has written for a variety of publications including World Nomads, Trek Effect and Uncharted. Emma has a degree in Business and Psychology from the University of Waterloo. She enjoys backpacking, reading and taking long hikes and road trips with her adventurous dog.
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