If you rely on a pension, whether it’s an employer retirement benefit or state pension, you may find your loan options somewhat limited. That’s because many lenders require you to have a steady job to be eligible.
However, you do have some options. We take you through what those are and show you how to compare these options so you can choose the right loan for you.
Fast, flexible loans from Post Office Money
- Borrow from £1,000 to £25,000
- Instant decision in most cases
- Fixed rate and fixed monthly payments over the whole term
- Applications from self-employed considered
Representative example: Borrow £15,001.00 over 3 years at a rate of 3.1% p.a. (fixed). Representative APR 3.1% and total payable £15,718.32 in monthly repayments of £436.62.
Warning: late repayments can cause you serious money problems. See our debt help guides.
What types of pensions are considered by lenders?
Pensions in the UK are offered by some employers and also by the government to senior citizens and those with disabilities.
Employer retirement benefit. Some employers offer pensions as a retirement benefit to employees. The amount you’ll receive in retirement is calculated by a formula determined by your employer.
State pension. The UK government provides retirement income to people of a certain age after they retire from their careers and have paid or been credited with National Insurance contributions.
Personal pension. Personal pensions are pensions that you arrange yourself. They are sometimes known as defined contribution or money purchase pensions. You will usually get a pension that is based on how much was paid in.
There are lenders who will look at these benefits as a form of income and consider the pension payments when evaluating your ability to repay the loan.
How to apply for a loan on a pension
You can apply for a personal loan at a branch (if the lender has them), or online. You’ll be asked to supply information including your name and contact details, as well as details of your pension payments, assets, debts and open credit accounts.
Personal loan applications are counted as inquiries on your credit report. Inquiries 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 now offer borrowers the facility to check their eligibility before applying, without affecting their credit score.
Are there any loan alternatives for people on pensions?
While it may be difficult for you to be approved for a personal loan while on a pension, there are alternatives that you could consider:
Equity release. Products such as lifetime mortgages and home reversions allow you to access the equity (cash) tied up in your home if you are over the age of 55. You can take the money you release as a lump sum or in several smaller amounts, or as a combination of both.
Secured loans. These are loans in which the debt is backed by an asset belonging to the borrower. However, if you fail to repay the loan, the lender can repossess the underlying asset.
Guarantor loans. Some lenders will allow a guarantor for personal loans, who agrees to back up a borrower’s loan and steps in to make payments if the borrower doesn’t. In this case it could be an adult child or close friend with a good credit history.
Car finance. If you’re looking to borrow money to fund a vehicle purchase, you may wish to consider a car loan. There are different forms of finance available to suit a variety of circumstances.
Frequently asked questions