When you retire, it doesn’t necessarily follow that you are all geared up and have sufficient pension policies, savings accounts and annuities in place to afford you a comfortable lifestyle throughout the entire lifespan of your retirement. Many people, unfortunately, aren’t in this position and, even for those that are, there’s always the unexpected that can happen at any time which can throw your budgeting plans right out of the window.
So, what are the options for people who wish to borrow in retirement?
The most common form of borrowing in retirement is equity release where you release cash from the value of your home which would have previously been tied up in the property itself. It can be a very useful means by which to release a significant amount of money that would not usually be made available to you via conventional loans but it does have implications and you should seek advice from an independent financial adviser before entering into any equity release agreement.
However, if you are not a homeowner, there are still other avenues open to you. Unsecured loans and credit cards are still available in many cases. The two criteria when a lender considers the suitability of an unsecured loan or credit card (which is also a form of unsecured borrowing) application is firstly to check your credit history and, secondly, to ascertain whether or not you have the ability to repay the loan. Providing you have a good credit history and one or more forms of income, which might come from one or more pensions or benefits you receive or from annuities, then a loan would still be made available to you. Your total income would be taken into account along with your other financial commitments and, providing the lender was satisfied that you could make the repayments comfortably, then you would receive the same treatment as anyone else who applied for such a loan.
In certain instances, some people’s income may be insufficient to qualify for a conventional loan rate but there are some companies who will still offer an unsecured loan, although maybe at a higher rate of interest to reflect the risk involved. There are other companies who offer loan transfer schemes whereby if you die or fail to keep up repayments on a loan, the loan can be transferred to another member of the family to continue the repayments on your behalf.
Ask Your Family
Your family themselves might also be in a position to lend you money. The advantage of this is that any money borrowed is likely to be interest free and you will probably not be pushed into having to make repayments by a certain date each month. Even if your family have not got enough cash to lend you the money themselves, they might be prepared to take out a loan on your behalf and you can then pay them the monthly repayments which they can then pass onto the lender themselves.
One thing to be aware of are the ‘underground’ lenders – i.e. those companies or individuals who are not regulated, charge extortionate rates of interest and can often use threatening behaviour if you fail to keep up repayments regularly. These should be avoided like the plague.
If you need to borrow money and you’re not a homeowner, you should always discuss matters with your family and/or seek professional advice from the Citizen’s Advice Bureau or an Independent Financial Advisor (IFA). Although you might not have access to some of the kinds of loans offered on the High Street, a reputable IFA often has access to searching for loans from several hundred reputable companies, some of which are simply not located on the High Street and who specialise in finding suitable loans and other financial services to retired people.
Furthermore, because they have built up a solid reputation with the lenders, they often have access to more preferential rates than are made available to customers directly.