You are a pensioner and are looking for a cheap loan. But they only have a small income.
Are there any loan offers under these conditions? And if so, are such loan offers serious, so do they have appropriate conditions?
Let’s not fool ourselves. Senior loans in themselves are not without their problems, especially for older people over the age of 70. If a low pension is added, the credit opportunities decrease further.
This does not mean that loans to low-income pensioners are not granted at all. The only thing that is strict is the requirements for the award. Five factors determine whether there is a chance of a loan for retirees with small income in a specific case: The available income, the desired loan amount, the loan term, the age of the applicant and the collateral provided.
Loan for pensioners with a low pension: the minimum income
It is an extract from the currently valid attachment table, which is made available on the website of the Good Finance debt advice agency.
A net pension of 1,140 dollars is required so that a small monthly amount of 4.34 dollars can be attached.
Take this amount as a guide. If your income is smaller, you will find very few banks that are ready to lend. The absolute lower limit is probably around 1,000 dollars.
However, the net income of people living in a household can be added up if both sign the loan agreement.
For example, if you are married and both partners receive a pension, the chances of credit increase, even if one partner or both partners draw a pension of fewer than 1,000 dollars.
The attachment table tells the banks to what extent they can enforce their claims in an emergency.
With the household bill, banks determine whether you can also afford a certain loan.
Banks set lump sums for the cost of living in their lending regulations. These packages are not published. It is possible that each bank has its own calculation method.
Estimates assume that the household flat rate for a single household is between 700 and 800 dollars per month. For each additional member of the household, 200 to 300 dollars are added.
The banks will, therefore, charge a household flat rate for a pensioner couple, which is currently between USD 900 and USD 1,100.
As a rule, the actual cost of living does not matter. The benchmark is solely the household flat rate estimated by the bank.
In individual cases, however, something different may arise if, for example, you have to pay particularly high rent for an apartment or have other special costs.
You can make an invoice for yourself whether you can afford a loan or not.
Assume your annual net income. Also, consider additional income such as rental income or wages from a small part-time job. However, do not take social benefits into account.
Get an overview now of how high your regular monthly expenses for groceries, additional rental costs, clothes, and other things are. Multiply this expenditure by 12.
Add to this amount all one-time special costs (for example insurance amounts that only accrue annually or quarterly) that are not included in the regular monthly expenses.
Subtract the annual costs from the annual net income and divide the result by 12.
This way you get the maximum amount you can spend on monthly payments.
Choose loan amount and term
Banks may issue loans to pensioners, but term limits are common.
Pensioners with lower incomes also face limits on the amount of the loan.
Some banks have a maximum age at the time of lending. Other banks are considering the end of the loan.
For example, the borrower may not be more than 75 years old when the loan is repaid in full, i.e. at the end of the term.
Using a (theoretical) sample calculation, we want to illustrate what these restrictions can mean.
Suppose a retired couple wants to take out a loan. Both are 70 years old and both have a net pension of 900 dollars, i.e. a total of 1,800 dollars.
Let us leave aside the question of attachable income and assume that the bank will accept a flat rate for the household of 1,300 dollars.
According to the bank’s guidelines, credit customers should be no more than 75 years old at the end of the term. In our example, this means that the loan can have a maximum term of 60 months.
The average effective annual interest rate for consumer loans with such a term is currently around 4.4%.
Banks charge risk premiums for loans to senior citizens. So let’s assume 5%.
In order to be prepared for unforeseen monthly expenses, the entire possible surplus of USD 500 should not be spent on the repayment of the loan. Perhaps a repayment in installments of 300 dollars per month is justifiable.
The maximum possible amount under the specified conditions is around 15,000 dollars.
It is a theoretical example. We have not investigated whether a bank grants a loan to a retired couple with a pension of just USD 900 net.
Loan guarantees for senior loans
For smaller, unspecified installment loans up to amounts between USD 10,000 and USD 15,000, direct banks normally only require the cession of wages if the borrower is employed.
In the case of vehicle financing, dedicated car loans are possible against the transfer of the vehicle as security, which is somewhat cheaper than normal installment loans.
Additional collateral is not absolutely necessary.
This is usually different for seniors, especially if their income is lower.
Borrowers can expect a second borrower (co-signer) to be made a prerequisite for lending even with smaller loan amounts.
The advantage is that a loan can even be obtained in this way and/or that the loan interest becomes cheaper.
For the co-signer, however, there is a disadvantage that should be taken into account when considering borrowing.
Pre-credits affect creditworthiness.
Even if the co-signer does not participate in the repayment of the loan, his financial ability to act is considered limited. Pre-credits can, therefore, be a hindrance to future borrowing.
Another additional collateral is particularly useful for borrowing a smaller pension. All assets that are easy for the bank to use are eligible.
These include securities holdings, endowment policies or private annuity contracts and savings. A real estate is also an option, especially if it is not burdened by land charges.