How to Borrow Money When You’re Retired

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Let’s bust a myth right here: you can still get a car loan, a home loan or otherwise borrow money from a bank when you’re retired. 

It’s a little more complicated than it was when you were still receiving a salary, but the general rules still apply. You’ll need to prove your assets, have some collateral, etc, but the secured loan options that are available to retirees include mortgages, home equity and cash-out loans, reverse mortgages, and car loans. You can also often consolidate credit card or student loan debt and qualify for an unsecured short-term loan (though those are risky and should only be used in emergencies.

How to get a loan

The usual approach to borrowing money is pretty straightforward:

  • Determine how much you need and what kind of payments you can afford
  • Ensure that your credit history and credit score look good
  • Shop around for good loan rates
  • Choose a lender and apply
  • Provide the lender with the necessary documentation to prove your income and any collateral
  • Accept the loan and start paying it off

If you’ve ever bought a car, a house or taken out money for any other reason you likely know what this process looks like in action. 

Good news: In retirement it works more or less the same. 

Getting a loan in retirement

Although your income forms the backbone of any loan application — your lender wants to know that you have the cash coming in to pay back the loan. So a retiree on a fixed income will naturally represent a greater loan risk than someone who is still working full-time.

You can expect lenders to consider your credit score and your overall financial situation when reviewing you for a loan, including any income you might have coming in from pensions, rental income, your investment portfolio, part-time work, etc. If you’ve planned out your retirement finance carefully enough you should be able to make a case that you can afford the loan payments based on your overall financial plan.

The big three considerations:

Your age: Will you be around to pay off the loan at the end of the term?

Your income: Do you have enough coming in to support the loan payments?

Your assets: Do you have enough in your accounts to cover the loan in case your income dries up?

Two stipulations: Credit score matters a lot in these situations so make sure yours is in good shape, and remember that those with rock-solid pensions are always going to be lower risk to the bank since they have guaranteed money coming in.

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