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

Given the current cost of living crisis, spurred on by sticky inflation and tension overseas, you may find it difficult to cover large, unexpected expenses with your pension alone. Rather than putting these purchases on a credit card and potentially incurring high interest charges and fees, we’ve put together a list of some loan options you could considered as a pensioner.

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. However, loan options are fairly limited 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 that you can make the repayments in the long term.

Additionally, some lenders may have stricter lending criteria or charge higher interest rates if you’re on one of these pensions; meaning 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 to the loan. If you’re interested in checking your credit score, you can do so for free with Canstar or via the Canstar App.

What loan options are available for pensioners?

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

1. Home Equity Access Scheme
2. No Interest Loans Scheme (NILS)
3. A personal loan with your current financial institution
4. A pension-specific personal loan from another provider

Keep in mind that terms, conditions and eligibility requirements apply to all of these options, and some of them may not be suitable for you based on your personal needs and circumstances.

1. 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.

The payments accrue as a debt secured against your nominated Australian real estate (e.g., your home). The current interest rate is 3.95% p.a. (per annum). This rate compounds each fortnight on the loan balance until you repay the loan in full. Keep in mind that the longer you take to repay the loan, the more interest will accumulate.

While you can make a repayment at any time, you don’t need to until you sell the property being used as security (you can also transfer the loan to another property), 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 (NILS) promises no interest loans for pensioners with no fees or charges. It allows low-income individuals and families to borrow up to $2,000 for essentials such as appliances and furniture or car repairs, or up to $3,000 for housing related expenses such as bond or rent in advance or for recovery from a natural disaster. These no interest loans come with no credit checks and a repayment time frame of 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 be able to show you can afford to repay the loan.

3. A personal loan with your current financial institution

If you have a good credit history or have held an account with your current bank or financial institution 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 still apply its lending criteria and assess your application based on a range of factors, including your credit score, income, assets, other debts you may have and your regular living expenses.

As a hypothetical example, if you don’t have many assets, a financial institution 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 it directly over the phone. As a pensioner, you may be considered a riskier borrower due to your income stream, so your financial institution may charge you a higher rate of interest on a loan than it would for other borrowers.

4. 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 the Age Pension which differ from their standard personal loan offerings. Lenders may take into account Centrelink payments when considering your income, so people receiving a pension may be considered eligible.

What are the best loans for pensioners?

As a pensioner, the best loan option for you will ultimately depend on your needs and financial circumstances. It’s important to read any terms and conditions for any loan products you’re considering. You may also consider obtaining professional financial advice before making a decision.

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

• You may not be approved: Getting approved for a personal loan may be more difficult as a pensioner than for someone on a higher, regular income. If your loan application is declined, this may be recorded on your credit report, potentially lowering your credit score and making it more difficult for you to access credit in the future.

• Fewer, potentially more expensive options: With potentially fewer options for loans that pensioners are eligible for among traditional lenders, your ability to find one offering competitive terms may be limited. For example, while so-called ‘payday lenders’ aren’t technically allowed to charge interest under the National Consumer Credit Protection Act 2009 (the Credit Act), they may charge up to 20% of the loan amount as an establishment fee and 4% per month as a monthly service fee, which can add up quickly over time.

• Could create financial stress: Some loans may require you to repay the loan in a short timeframe, which could put you under financial pressure. It’s important to read the terms and conditions of any loan before signing up, to make sure the repayment deadlines suit your circumstances. These terms and conditions can usually be found in the Product Disclosure Statement (PDS).

• Being able to meet the repayments: Before applying, consider whether your pension payments will be enough to cover the regular loan repayments, including the interest that will accrue, so that the loan is repaid on time. For example, would you still be able to meet your repayments if unexpected expenses arose down the track? Keep in mind that if your loan is not repaid during the loan term, extra fees may apply. Missing loan repayments may also negatively impact your credit score, which can affect the loans and interest rates that you may be eligible for in future.

How can pensioners apply for a loan?

Before applying for a loan, it’s a good idea to check the lender’s eligibility criteria and compare personal loan options from a number of different providers; looking at factors such as the interest rate charged, whether the rate is fixed or variable, whether the loan is secured or unsecured, the fees charged and any other features and conditions, such as whether you can make additional 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.

If you decide to apply for a personal loan, you can usually begin the application process online, over the phone or at a physical branch (if your financial institution has one). Keep in mind that you’ll 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.

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. Loan applications you make may show up on your credit history report, and making multiple loan applications in a short period of time could negatively impact your credit score.

What other options are available to pensioners?

• A Services Australia Advance Payment: If you receive an income support payment, such as an Age Pension or Disability Support Pension, you may be able to get part of this payment early. You’ll then need to pay this advance back out of your future pension payments.

• Using an asset to secure your loan: If you have existing assets, such as a car or home, you might be able to use them to secure a personal loan. This could mean lower interest rates, but there’s a risk that the lender will seize the asset if you’re unable to make your repayments.

• Community-focused programs: Some community financial assistance programs provide loans (such as NILS) or payments to low-income earners who require financial assistance. There may be particular requirements involved, such as the loan only being able to be spent on household goods and essential items.

• Equity release: Arrangements such as a reverse mortgage or line of credit 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 funds, the Federal Government’s Moneysmart website 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 making a decision.

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’s 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. These providers often supply financial hardship assistance as well.

• Talk to your financial institution about support: If you’re struggling financially, you may be able to approach your bank or financial institution directly for advice and support. Many offer financial hardship support as part of their services, but be aware that the advice they give may not always 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 professional 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. Its financial counsellors are free of charge, independent and provide confidential service.