Category: Retirement

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.