If you rely on Kiwisaver, NZ Superannuation or another type of pension for your retirement funds, you may find your loan options somewhat limited. That’s because many lenders require you to have a steady job to be eligible.
However, when it comes to loans for people on a pension, you do have some choices. Keep reading to find out what those are so you can decide on the right loan for you.
Your existing bank. If you have a good history with your bank, this is usually an excellent place to start. You can visit in-branch to discuss your options and find out what personal loans are available for applicants who are retired and receiving superannuation.
Secured personal loans. Secured loans require you to attach a high-value asset as a guarantee and in return, you can borrow the value of that asset. Examples of assets include vehicles, term deposits or equity in your home.
Unsecured personal loans. You don’t have to attach an asset to this loan as it’s unsecured. You can use this loan for investment purposes, to take a holiday, buy a used vehicle or to consolidate debt.
Low-doc loans. An option for people who can’t apply for a traditional personal loan. Lenders require less documentation but tend to have higher rates and fees.
Short-term loans. As these loans are smaller and repaid over a shorter term, they have more flexible lending criteria than those set by banks and other lenders. You can usually borrow between $100 and $2,000 for a period of 2 days to one year. Many lenders understand that superannuation payments vary from one person to the next. The loan provider will verify your income and expenses before they potentially fund the loan.
Reverse mortgages. These loans offer you a line of credit, regular income stream or lump sum payment by borrowing against the equity in your home. While traditionally thought of as high-risk, reverse mortgages are becoming a more mainstream borrowing method.
Overdrafts. This is a convenient credit product that lets you draw over and above your account balance in your everyday transaction account.
Car loans. If you are looking to purchase a new or used vehicle you can consider a car loan. These loans offer competitive rates because the vehicle you purchase is used to guarantee the loan.
Personal loans you may be able to apply for while on a pension
Select “Compare” to see the full eligibility requirements of each lender before applying.
Unreputable lenders. Check the lender has a credit licence and is not charging you more than the Financial Market Authority (FMA) allows. The lender should be easily contactable.
Unaffordable repayments. Consider the size of the regular repayments and ensure the loan is able to be repaid during the loan term. If not, extra fees apply to extend it. Be careful, since repayment periods for these kinds of loans tend to be shorter than regular loans.
Multiple applications. Every loan application shows up on credit reports. While lenders might not consider credit history, several applications within a short period can have a negative impact on your credit score moving forward.
Check rates and fees. Establishment and monthly fees are capped, so be wary of lenders quoting prices beyond the legal maximum amounts. Be crystal clear on what will be charged for late payments or a default on the loan. The total cost of the loan matters here – lenders can charge interest rates on top of everything else.
Long-term repercussions and legal issues. Once the loan agreement is signed, the customer is bound to its conditions until the loan and any associated rates and fees have been paid. Typically these loans are unsecured, which means that the lender can initiate legal proceedings against the customer if they can’t repay.
How to apply for a loan on a pension
The table above can be a good starting point to find a loan for people who rely on a pension as their main source of income. You can click on the name of the lender to read a review, and you can click “Go to Site” to submit your application. If you have questions regarding your eligibility, you can contact the lender directly.
To give yourself the best chance of being approved, make sure you have all your information on hand before starting the application process. This includes:
Personal information. Your name, contact, identification information and details regarding your family situation.
Loan details. Explain how much you need and the purpose of the loan.
Finances. Remember to include all sources of income and provide evidence of this. You also need details of debt and liabilities.
Assets. What assets do you hold? This may be your home, rental properties or vehicles.
Personal loan applications are counted as inquiries on your credit report. Enquiries play a factor in your overall credit score. Lenders may also view too many enquiries as a red flag. To keep your credit in good standing and improve your chances of approval, you may want to consider limiting your number of loan applications.
If it isn’t clear if you meet the minimum eligibility criteria, for example, you may have income from investments that aren’t “regular”, then it is best to get in touch with a lender before submitting an application. Every personal loan application is listed on your credit file and can hurt your chances at being approved for subsequent loans. Lenders can’t tell you for sure whether you are approved until you submit an application, but they may be able to clarify certain criteria or provide you with additional details.
If your pension benefits are less than the lender’s minimum income requirements, you may not be eligible to apply for that specific loan. You can compare more personal loan options to find one that has more lenient eligibility criteria.
No. You should receive the exact amount of money you’re approved for by the lender without any taxes withheld. Personal loans aren’t considered as income on your tax return either.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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