With the rising cost of living affecting everything from groceries to health insurance, you may find it difficult to cover large, unexpected expenses with your pension alone. Rather than putting these purchases on a credit card or taking out other forms of higher interest debts, pensioners might find themselves considering taking out a personal loan.
Can you get a personal loan if you’re on a pension?
It may be possible to get a personal loan if you’re a pensioner, but chances are will be more challenging than if you were in full-time employment. There are generally fewer options available for those on the Age Pension, Carer Allowance, or Disability Support Pension (DSP), as it can be harder to satisfy regular income requirements and prove you can make repayments in the long term.
What finance options are available for pensioners?
There’s more than one way for a pensioner to borrow money, though not every option will suit your individual needs. Some of the available avenues may include:
A personal loan
As a pensioner, you may be considered a riskier personal loan borrower, especially if the Age Pension is your only source of income. If you don’t have many assets, a financial institution may be more reluctant to approve you for a loan. This doesn’t mean you can’t get a personal loan as a pensioner, but you may be charged a higher interest rate or face stricter conditions than other borrowers.
Even if you have a long-standing relationship with your bank, you’ll still need to fulfil its personal loan lending criteria, and your application will be assessed based on factors such as your credit score, income, assets, other debts, and living expenses.
Pension-specific personal loans
Certain banks, credit unions, and peer-to-peer lenders may offer loans specifically for people on lower incomes. These specialist lenders may take Centrelink payments into account when considering income, so people receiving a pension may be eligible. For example, some lenders offer retiree loans or loans for those on the Age Pension, which differ from standard personal loan offerings.
Home Equity Access Scheme
The Home Equity Access Scheme is a voluntary non-taxable loan available to senior Australians who meet Age Pension age and residency requirements and own real estate in Australia. Effectively, you can borrow money from the government using the value of your home as security.
Each payment you receive through the Scheme adds to a debt that’s secured against your home’s value. Interest is charged each fortnight at a rate lower than many offered by lenders on the general market, and interest compounds on the loan balance until you repay the loan in full.
While you can make a repayment at any time, you aren’t required to until you sell the property being used as security (you can also transfer the loan to another property), or until you pass away. At this time, the full loan amount and interest owed will be recovered from your estate.
Keep in mind that the longer you hold the loan, the more interest will accumulate. However, a no negative equity guarantee also applies, meaning you won’t owe more than your loan is worth when it's sold. For example if your loan balance is $250,000 and your property is only worth $200,000, you would only need to repay $200,000 to Services Australia.
No Interest Loans Scheme (NILS)
The No Interest Loan Scheme (NILS) offers small no interest loans for pensioners that don't come with fees or charges. It allows low-income individuals and families to borrow up to $2,000 to pay for essentials such as appliances, furniture, or car repairs, or up to $3,000 for housing-related expenses such as:
- Rental bonds
- Rent in advance
- Recovery from a natural disaster
These no interest loans don't demand a credit check and repayment time frames can be up to 24 months.
To be eligible for an NILS loan, you must have a Health Care Card or Pension Card, earn below certain income thresholds, have lived at your current address for at least three months, and show you can afford to repay the loan.
What are the best loan options for pensioners?
The best loan option for you will ultimately depend on your needs and financial circumstances as a pensioner. For example, a pensioner who owns their home outright and has a good credit score may have more options available to them than a pensioner who is renting in retirement and has struggled with financial hardship in the past.
It’s important to read the terms and conditions for any loan products you’re considering to get a better idea of which options may best suit your situation. You may also want to consider getting professional financial advice before making a decision.
What are the risks of taking out a personal loan as a pensioner?
- Getting approved for a personal loan may be more difficult as a pensioner than for someone on a higher, regular income.
- With potentially fewer eligible loan options among traditional lenders, it may be harder to find finance offering competitive terms.
- Some loans may require repayment in a short timeframe, which could put you under financial pressure.
- Missing loan repayments may also negatively affect your credit score, which can affect the loans and interest rates you may be eligible for in future.
How can pensioners apply for a loan?
you can generally apply for a personal loan directly with your chosen lender online or over the phone. You can also apply in person at some banks and building societies. You’ll likely have to complete paperwork and submit supporting documentation, such as:
- ID documents (driver’s license or passport)
- Proof of income, including Centrelink or pension payments
- Details of any assets you have (cars, real estate)
- Details of any debts
To help you understand the requirements of any loan agreement, it’s important to read the loan documentation carefully, including any terms and conditions.
Depending on the lender, your personal loan application could be assessed in a matter of days, or even hours. The more details in the application that the lender needs to check, the longer the approval process may take.
If your loan application is successful, the money should also arrive in your bank account soon after you're approved and you can start making repayments as scheduled.
What can you do if your loan application is rejected?
If your application is not approved, don't apply again with a different lender immediately. Loan applications show up on your credit report and submitting multiple loan applications over a short period of time can negatively affect your credit score, which could make it harder to borrow money.
What support is available for pensioners?
Before borrowing money, you might want to consider seeking financial support through one or more of the following channels:
- Ask providers for a payment plan: Utility providers, such as electricity, phone, water and gas companies, may offer payment plans or financial hardship assistance.
- Talk to your bank: If you’re struggling financially, many banks and financial institutions offer financial hardship support.
- Look into government benefits: There may be some government benefits or initiatives relevant to your financial situation as a retiree.
- Talk to a financial counsellor or seek professional independent financial advice: You can contact the National Debt Helpline (NDH) on 1800 007 007 to speak with a independent, confidential financial counsellor, free of charge.
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