As you move into your older years, your finances change with your lifestyle. When that happens, you may find that getting a loan isn’t as easy as it was when you were earning an income from employment. However, there are lenders that will consider you for a personal loan as a retiree. But just be aware of the costs some loans might have and the impact borrowing at a late stage could have on your retirement funds.
Retirement isn’t the end of your borrowing experience. Even when you no longer have income from a job, you may still qualify for a number of loans, provided you have Social Security benefits, a pension or a retirement fund. These are some of the more common loans available to retired people, but if you have something specific in mind, don’t hesitate to contact a lender to discuss eligibility criteria.
Personal loans. A personal loan can be either secured or unsecured. Some lenders offer up to $100,000, but you may not have access to this large amount if you don’t have the liquid assets to back it up and an excellent, especially when you rely on fixed monthly income.
Personal lines of credit. A line of credit is similar to a personal loan. But instead of receiving a lump sum, you’ll be able to draw from your line whenever you need it. This can be particularly useful when you aren’t sure how much you need in advance.
Peer-to-peer loans.Peer-to-peer loans are funded by investors rather than banks or institutional lenders. Although they take longer to be funded than normal loans, some can offer people with fixed income a loan they might not otherwise qualify for.
Mortgages. With lifespans getting longer, people are living well into their 80s and 90s. Banks and other lenders can’t discriminate based on age, so if you’re interested in buying a new home to downsize or make life easier as you age, consider looking into a mortgage.
Reverse mortgages. Reverse mortgages 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.
Home equity loans. Similarly, a home equity loan or line of credit uses your home’s equity to fund a loan that can be used for just about anything. If you need to cover a large expense after retirement, then a home equity loan is a secured option that can keep you from paying large interest rates.
Short-term loans. While not the safest option when you’re on a fixed income, a loan for people with bad credit can help in a pinch. Just be sure to check interest rates and the laws of your state — not every short-term loan option is available in every state.
Bridge loans. If you need a short-term loan for buying a new home, a bridge loan can do the trick for you. However, be aware that you may be hit with high interest rates, so make sure you carefully calculate how much you can pay.
Personal loans you may be able to apply for as a retiree
Whether your retired from the military or simply served the country, you may have loan options you aren’t aware of. Some lenders, like Navy Federal Credit Union and USAA, cater to veterans. Other lenders may have special deals or lower interest rates if you provide proof of your service. You could benefit from a personal loan for veterans, and in many cases, spouses will also be eligible. Your best option will be to contact your local VA or visit the Department of Veterans’ Affairs to see what kind of options you have.
What types of retirement situations are considered by lenders?
Lenders consider a large number of retirement situations when you apply. As long as you have a steady source of income — whether it’s through assets, a part-time job or retirement benefits — you may qualify for a loan.
Self-funded retirees. If you earn income from investments such as rental properties or your retirement savings account, you’re referred to as a self-funded retiree. When applying for a loan, make sure you have as much proof of your assets and income as possible to show your lender you’ll be able to manage the repayments.
Retirees on pension or Social Security. If you receive pension as a form of income, you may still be able to qualify for a personal loan. Be sure to check the eligibility criteria of the lender as not all will be able to accept pension or Social Security benefits.
Retirees who work part-time. If you have steady employment, even if it’s only part-time, this income will be considered by lenders. However, lenders may still have a minimum income criteria that you’ll need to meet before you apply.
Imagine this scenario: As a couple, Linda and Grant receive $1,270 in retirement benefits twice a 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 a personal loan to buy a replacement.
Option 1: They looked into an auto loan to purchase a vehicle. Since an auto loan is a secured loan, they found they could get reasonable interest rates.
Option 2: Linda and Grant also looked into an unsecured loan option so that their car couldn’t be taken away in the event they fell behind on payments. They looked into peer-to-peer loans, which can also come with affordable interest rates.
Ultimately, Linda and Grant decided on a peer-to-peer loan because they felt more comfortable borrowing money without collateral attached.
What will I need to apply?
To make the application process easier, especially if its through an online lender, you should gather your documentation before starting the application. You’ll need to provide your lender with your
Personal information. Your name, date of birth, Social Security number and contact details are all commonly required for loan applications.
Financial information. Include all sources of income and provide evidence of them. You’ll also need to provide the details of your debts and liabilities.
If the eligibility criteria aren’t clear, get in touch with the lender before submitting your application. For example, you may have income from investments that isn’t consistent, which means you might not always meet the minimum income criteria. While a lender can’t guarantee approval, it can clarify certain points and provide you with additional information that will help you complete your application. And to give yourself the best chance of being approved, make sure you have all of your information on hand before applying.
Retirement is a long period of life that you have to look forward to. But when you need a loan — no matter the reason — it can be frustrating to find one that can work with you, especially if you’re on a fixed income. Keep your options open and compare your choices as you navigate your later years.
Frequently asked questions
Personal loan applications usually don’t take more than 10 to 15 minutes to complete if you have all of your information on hand.
Loan applications are counted as inquiries on your credit report, which play a factor in your overall credit 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, you may want to consider limiting your number of loan applications.
Most lenders have customer service lines you can call to ask specific questions. Look for the Contact Us page in the main menu or footer of the lender’s website.
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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