Personal loans for pensioners in Australia: What are the options?

Deputy Editor · 11 March 2021
If you’re on a pension and looking to take out a personal loan, what options are available and what obstacles may be in your way?

While it is generally more difficult to take out a traditional personal loan from a lender if you receive a pension, it may not be impossible. It’s important to understand the risks, however, and it may be worth considering alternative options, such as borrowing the money you need through a government scheme.

We take a look at some of the potential options available for those on a pension who want to take out a personal loan, as well as some of the alternatives to borrowing money.

Can you get a personal loan if you’re a pensioner?

It may be possible to get a personal loan if you are a pensioner. However, loan options are generally limited for those on an Age Pension, Carer Allowance or Disability Support Pension (DSP), as it may be harder to satisfy regular income requirements and prove that you can make the repayments in the long term. Some lenders may have a stricter lending criteria or charge higher interest if you’re on an Age Pension, Carer Allowance or DSP, meaning that it could be harder to get your personal loan approved. Your credit score may also impact the likelihood of you getting a personal loan, along with interest rates that may apply.

What are the risks of taking out a personal loan as a pensioner?

When you borrow money, there are generally a number of risks to factor in, but if all or part of your income is made up of Age Pension or other government support, the risks can be amplified and there may be additional factors to consider.

  • You may not be approved: Getting approved for a personal loan may be more difficult as a pensioner. If your loan application is declined, this may be recorded on your credit report, potentially making it more difficult to access credit in the future.
  • Fewer, more expensive options: With potentially fewer options for pensioners among traditional lenders, your ability to find a loan offering competitive loan terms may be limited. For example, some lenders specialising in personal loans for pensioners, such as certain ‘payday lenders’, advertise interest rates up to 48% per annum (or annual fees that are equivalent to that rate), which is the maximum rate of interest allowed on a credit contract under the National Consumer Credit Protection Act 2009 (NCCP). Fees can also be high on these kinds of loans, with some lenders charging a loan establishment fee of up to 20% of the value of the loan, which is also the maximum amount allowed under the NCCP.
  • Could create financial stress: Some loans advertised as being suitable for pensioners require the borrower to repay the loan in a short time frame, which may put you under financial pressure.
  • Meeting the repayments: Before applying, consider whether your pension payments will be enough to cover the regular loan payments, including the interest that will accrue, so that the loan is repaid on time. For example, will you still be able to meet your repayments if unexpected expenses arise down the track? Keep in mind that if your loan is not repaid during the loan term, extra fees and costs may apply. Missing loan repayments may also impact your credit score, which can impact loans and interest rates that you may be eligible for in future.

What loan options are available for pensioners?

There are various loan options that may be available to pensioners, including bank loans, and a number of government schemes that allow pensioners to borrow money. Some of these options include:

  1. Pension Loans Scheme (PLS)
  2. No Interest Loans Scheme (NILS)
  3. StepUP Loan
  4. A personal loan with your current bank
  5. Pension-specific personal loans from another provider

Keep in mind that there may be some terms, conditions and eligibility requirements that apply, and these options may or may not be suitable based on your personal needs and circumstances.

1. Pension Loans Scheme (PLS)

The Pension Loans Scheme allows those who are of Age Pension age, receiving an eligible pension and with real estate in Australia to use as security, to receive a loan from the government. The loan is a voluntary, non-taxable amount of your choice that you receive each fortnight and may be used to supplement your retirement income. The loan cannot be given as a lump sum payment; however, you may receive up to 1.5 times the maximum fortnightly payment rate of your pension and you can ask to stop the loan payments at any time. The loan must be repaid, along with any additional costs and accrued interest. While you can make a repayment at any time, you don’t need to until you sell the property being used as security, or until your death, at which time the full loan amount and interest owed would be recovered from your estate.

2. No Interest Loans Scheme (NILS)

The No Interest Loan Scheme was established to allow low-income individuals and families to borrow up to $1,500 to spend on essential goods and services. Unlike traditional loans, a loan under the NILS has no interest or fees, generally has a loan term between 12 and 18 months and doesn’t require a check of your credit history. To be eligible for an NILS loan as a pensioner, you must have a Health Care Card/Pensioner Concession Card, have lived at your current address for more than three months and be able to show that you can repay the loan amount based on your budget and documentation you provide.

3. StepUP Loan

Another alternative is a StepUP low interest loan, which allows people on a low income who struggle to borrow from traditional banks to take out a loan between $800 and $3,000. It has a low fixed interest rate and you can repay the loan for up to three years with weekly, fortnightly or monthly repayments. To be eligible for a Step Up low interest loan, you must have a Health Care Card or Pensioner Concession Card or be receiving Family Tax Benefit A, and have lived at your current address for more than three months.

4. A personal loan with your current bank

If you have a good credit history with your current bank or credit union or have held an account with them for a long time, applying for a personal loan with them could be an option to consider. Remember, though, that even if you have a long-standing relationship with a particular provider, it will likely still apply strict lending criteria and will assess your loan application based on a range of factors, including your credit score, your level of income, your assets, other debts you have and your regular living expenses. As a hypothetical example, if you do not have many assets, a bank may be more reluctant to approve you for a loan if the Age Pension is your only source of income. You can usually check specific lending requirements by visiting a lender’s website, or contacting them directly over the phone or in a branch.

As a pensioner, you may be considered to be a riskier borrower, so your bank may charge you a higher rate of interest on a loan than it would for other borrowers.

5. Pension-specific personal loans from another provider

Certain banks, credit unions and peer-to-peer lenders may offer loans which are tailored to accommodate people who receive a low income, and may be specific to the type of pension that you receive. For example, some lenders offer retiree loans or loans for those on Age Pensions which differ from their standard personal loans. Lenders may take into account Centrelink payments when considering your income, so people receiving a pension may be considered eligible.

How can pensioners apply for a loan?

Before applying for a loan, it may be a good idea to check the lender’s eligibility criteria and compare personal loan options from a number of providers, looking at the interest rate charged, whether the rate is fixed or variable, the fees charged and any other features and conditions, such as whether you can make extra payments to pay the loan off early without extra fees applying. Consider too, of course, if there are options available to you other than taking out a loan.

To help you understand the requirements of any loan agreement, it may be helpful to read the loan documentation carefully, including any terms and conditions. If you decide to apply for a personal loan, you can usually begin the application process online, over the phone or in branch, depending on the lender. Keep in mind that you will likely have to complete paperwork and submit supporting documentation, such as identification, proof of income and disclosure of any assets, before the lender reviews your application.

Loan applications you make may show up on your credit history report, and making multiple loan applications over a short period of time could negatively impact your credit score. You can check your credit score for free with Canstar.

What other options are available to pensioners?

Before taking out a personal loan with a traditional lender, such as a bank, credit union or other provider, there may be some alternative borrowing options available to you. These include:

  • A Centrelink Cash Advance: If you receive an income support payment, such as an Age Pension, you may be able to get part of this payment early as an alternative to traditional borrowing. You can pay it back later out of your future Pension payments.
  • Using an asset to secure your loan: If you have some existing assets, such as a car, you might be able to use these assets to secure a personal loan. This could mean lower interest rates; however, there is a risk that you will lose the asset if you are unable to make your repayments.
  • Community focused programs: Some community financial assistance programs, such as StepUP, Saver Plus and Good Money, provide low-interest personal loans to families and low-income earners who require financial assistance. There may be particular requirements involved, such as the loan amount being matched to your current savings or only being able to be spent on household goods and essential items.
  • Equity release: Arrangements such as a reverse mortgage or home reversion may allow you to access a lump sum of money using the equity in your home. While these arrangements can offer flexibility to pensioners who own their home and need access to cash, Moneysmart explains that there are risks involved and long-term financial impacts. It’s important to consider the pros and cons and to seek independent financial or legal advice before you commit.

What support is available for pensioners?

Taking out a personal loan is a long-term commitment and may continue to be a financial burden until it is repaid. Before borrowing money, you might want to consider some of the following potential alternative solutions:

  • Work out payment plans for bills: If you require money to cover your living expenses, you may be able to discuss setting up payment plans with individual providers, such as electricity, telephone, water and gas companies.
  • Talk to your bank about support: If you are struggling financially, you may be able to approach your bank directly for advice and support. Many banks and financial institutions offer financial hardship support as part of their services; however, be aware that the advice given may not be independent.
  • Look into government benefits: There may be some government benefits or initiatives that are relevant to your financial situation. Services Australia has information for older Australians about payments and services that may be available.
  • Talk to a financial counsellor or seek independent financial advice. If you want to speak to a financial counsellor, generally the first step is making contact with the National Debt Helpline (NDH) on 1800 007 007.

Cover image source: And-One/

Additional reporting: Eliza Parry-Okeden

This article was reviewed by our Sub Editor Jacqueline Belesky before it was published as part of our fact-checking process.

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