Can you Borrow Money when you are Retired?

If you have retired you may still need to get your hands on extra money and you may wonder whether borrowing will be an option for you. There are different forms of borrowing and some may be more easily accessible than others. You may want to find out a bit more about them before deciding whether you think that it is a good idea to borrow money.

Many lenders will look at your credit rating to decide whether they think that they would like to lend you money. If you are retired they will often not consider lending to you because they consider you to be more of a risk. Not only do most people have a lower income in retirement, but they also are seen as a risk because they potentially may not be able to pay off the entire loan before they pass away. This could make getting back the money that is owed much more complicated and it may not be paid back at all. This is why it is almost impossible to get a mortgage or other long term loan in retirement.

It still may be possible to get some shorter term loans though. Many people get a credit card before they retire and organise an overdraft and are able to continue using these once they retire. The bank may reduce the amount of credit that they offer on retirement though, perhaps reducing the overdraft amount or the amount of credit available on the card. These can be expensive ways to borrow money though. As there is no requirement to pay them back immediately, or just a small amount in the case of a credit card, it means that the loan can potentially hang around for a long time. This means that the interest can accumulate on it and the loan can turn out to be very expensive. Unauthorised overdrafts, for example, can be some of the most expensive loans available, so you need to be careful with what you are borrowing and how long you take to repay the money that you have borrowed.

You may be able to get a secure loan, using your home or car as collateral. These are still likely to be more difficult to get, due to the fact that you are retired though. You may need to be able to show that you will have ample income to be able to afford the repayments. You may not be willing to use these as collateral though, it depends on how much of a risk you think that you will be taking. If you cannot make the repayments then the items could be repossessed which may be a risk that you are not prepared to take.

Some people choose to release equity in their homes when they have retired which can be set up as a type of loan. There are many different schemes, but essentially you will get some of the value of your home in exchange for the home being given to the lender once you no longer need it or you paying them rent for living in it. If you are considering one of these it is worth doing a lot of research as they are relatively new and people do not know much about them.

Short term loans, often called payday loans, are available to most people regardless of whether they are retired. This is because credit rating is not a factor when deciding who is eligible but as it is high risk for the lender it is very expensive. Many people avoid these loans due to the cost and it is worth noting how much dearer they are if you do not manage to repay them when required.

So although there are loans available to people that are retired there is less choice. Loans are also likely to be more expensive due to the higher risk of lending to someone without a job and you may not be able to borrow so much money. It can be wise to speak to a financial advisor about borrowing as you will have fewer options available to you and they will be able to let you know which will be the best for you in your particular circumstances.

Is it wise to get a loan in a Recession?

Whether to get a loan can often be a tricky decision. However, choosing hen to get the loan can be just as difficult. If the economy is in a recession, for example, this could make you wonder whether it is a good time to get a loan.

When a country is in recession it can have a number of effects on what happens in the future. As the economy is not predictable, it can be hard to know what these might be. However, based on past recessions, predictions can be made by looking on what happened then.

A recession is when the economy shrinks. It means that not as much money is being made. Although in the short term, this may not be significant, once it happens for a period of time, it is known as a recession and this can have knock on effects on everyone. If the economy is shrinking it means that business is not doing so well. This means that redundancies could be a possibility and that pay rises are unlikely as business will have less money to spend as they are less profitable, possibly even making losses. It will also affect consumers as they start to think that they may have less money in their household and therefore will not spend so much. They will save some money just in case they need it and this will lead to business shrinking even more as people are not buying from them. Until people in general believe that the economy is going to improve, their behaviour will not change and the economy will not improve. So moving in and out of recession is very much linked to whether it is thought that we will go into or out of recession.

Borrowing money in a recession can be risky. If you lose your job as a result of the recession, then you are likely to struggle with the repayments. If there is more than one income coming in to the household then this will reduce the risk of you not being able to make the repayments. It will also depend on the nature of our work and whether the industry you are in is likely to shrink and whether you have skills which are easily transferable to another role. Some companies will still be employing in the recession and so even if you lose your job, you may be able to find another, but it will depend on what is available and whether you fit those jobs.
Whenever you get a loan, there is always a risk. It is wise to make sure that you really need it and that you have compared different loans to make sure that you have the best one for you at the best possible rate. Make sure that you consider how you will afford the repayments and consider whether it is something that you think you will be able to manage both in the short term and the long term.

In some ways you may feel that you will be worst off during a recession and so if you can afford loan repayments at that time, then you will be able to afford them at any time. Although this could be correct, you may still be taking a risk as you could still lose your job if the recession continues for a long time. Some recessions are over with fairly quickly but others are not and even when they end growth could still be slow and some industries and companies will take longer to recover than others. It can still be very unpredictable.

Taking a loan can always be a difficult decision. It is always worth considering both your personal circumstances as well as the general economy when thinking about it. Make sure that you are confident that you need to borrow the money and that you will have the means to pay it back until it is completely repaid. Even with an open ended loan, where there are no fixed repayments, such as with a credit card or overdraft, you need to consider that you need to repay it at some point and the sooner you do so, the cheaper the loan will be.

Should a Parent Borrow for their Childs Education?

Many parents worry about their children’s education and whether they should help them to get a better one. Even if they go to a state school, there is the expense of university to worry about which is not free for any student. This means that many parents consider getting a loan to help their children out.

With regards to university, there are student loans which can give students a sum of money which will pay for their course fees and possible costs of accommodation as well. It can be tempting to see these loans as a big burden for the students and feel that, as parents. We should pay it for them so that they do not need to get into any debt. However, a student loan may not be as bad as it sounds. There are many differences between it and a conventional loan. For example the debt is written off after thirty years. It only has to be paid back when earnings are above a certain level and it is taken out of the tax code and so does not affect their credit rating or ability to borrow money in the future. Of course, there is always the worry that the government might change the rules in the future, but most people are willing to take that risk and assume that if the rules are made too unfair there will be a big outcry and many complaints from the public.

If you compare the loan interest rate on a student loan to other loans it can seem expensive and parents may think that they may be able to borrow at a better rate and not have to repay so much. However, many students never repay their loan in full, due to the fact that it gets written off after thirty years and they only have to make repayments once their salary reaches a certain amount. Therefore it could work out a lot cheaper, so comparing the interest rate may not be the best way to calculate which is the best option. It could be much better to think about whether the loan is likely to be paid back in full. This would only happen if the student graduates, finds a job immediately that has a salary above the highest payment threshold and works for a full thirty years in a job of that salary or more without any breaks. This is unlikely to be the case for many graduates.

Many parents will top up the student loan with some extra money. This is because the loan will not normally be enough to cover all of their expenses. Some students will get a job or have savings to help them pay the difference and some may be able to get a grant or a higher loan, but there will be many that need that extra money. This is a situation where parents may need to consider a loan to help them. If possible it would be better to give the money without getting a loan. Perhaps using savings or paying them a little each month from their earnings, but it will all depend on your own personal circumstances and the only way you can afford it would be to get a loan. In this situation you will have to decide whether you think it is worth borrowing this way to help them. It may be the only way that they will be able to manage to get a degree and you will have to decide whether you think that this is worth it.

Borrowing for primary and secondary education is problem more of a risk for parents. This is fourteen years worth of education in total and the fees will therefore add up to a huge amount. You may not need to borrow all of the money but it is till well worth thinking hard before doing this sort of thing. Borrowing to help them at degree level only means three years of borrowing which is very much smaller than the fourteen years of schooling. With schooling there are free alternatives but with university there is not and therefore this should have some bearing on your decision of whether it is worth borrowing, as well.