Applying for loans when you are over 65

Applying for loans when you are over 65

Should you be applying for loans when you are over 65? Whether you need to make your home more accessible, extend your home, or just need general financial assistance to manage some unexpected expenses, there are a number of financial options available to anyone in retirement. If you are not sure where to start or if you are eligible to apply for a loan, we explain everything you need to know. 

Criteria for a loan

Whether you are over or under 65, when any lender assesses an application for a loan they will always look at two things first – your income levels and credit levels. For over 65s there is an upside and downside to going through this process. 

Where a retired person may struggle during the application process is assuring the lender they can afford the loan due to their drop in income since leaving full-time employment. The lender can see this as a potential risk on any money they lend, which may lead to higher rates of interest, shorter loan terms, or outright refusal. 

On the positive side there is a much higher chance that a retired person has managed to develop a good credit history as they will have had a longer period of time to organise their finances and clear up any previous issues. This should be reflected in their credit score and subsequently puts them in a stronger position when it comes to applying for a loan.

Retired people are also more likely to have assets that are worth more than their incomes, which could be used as security, depending on the type of loan they are applying for.

Budgeting for a loan

Before you agree to any sort of loan, it is important to have clear sight of your budget and what you can and cannot afford. 

Whatever income you rely on once you have retired it must allow you to live comfortably without having to struggle to make ends meet. For example, a monthly pension should cover all the essentials such as food, rent/mortgage payments, utility bills and any other debts that are outstanding. 

While the money left over can be spent as you wish, once you factor in the monthly repayment of a new loan there must still be an adequate amount left over to deal with any unexpected emergencies. 

Of course, the lender will enquire about your income and expenditure but it makes sense to look at your finances before you apply. There are a number of useful tools available online that can help, and if you calculate that it is not financially viable to apply for a loan, then it could save you a lot of time and frustration by not making an application that will ultimately be refused. 

Gaining approval

The documentation a person over 65 will have to provide will be different to an applicant who is still in full-time employment. When a non-retired applicant applies for a loan some of the documentation required includes proof of income to confirm their earnings, and copies of bank statements to reveal how their money is managed on a monthly basis. 

A retired person applying for a loan will need to provide details of their retirement income or a copy of their pension documentation. The primary concern for any lender is not where the income is coming from, but that you can prove it is sustainable. 

This can come in many different forms, whether it’s having a strong credit score, good pension and equity in your property, or if you are supplementing your pension by working part-time. If the lender sees that your income can cover the repayments without having a detrimental effect on your standard of living, they are more likely to agree to the loan.

Other types of income that could be used as part of a loan application include dividends received from shares, or monies generated from renting out any additional properties you may own. 

While it may be more difficult to have a loan application accepted if you do not have good credit, there are still situations where you can be successful. For example, if you have existing credit that is currently being managed without issue then it demonstrates to lenders that you may be less of risk. 

Length of loan 

A key issue for retired people to overcome when applying for a loan is the repayment length that may be offered to them by the lender. This is largely due to concerns from the lender about the applicant’s age, as they may believe it is a risk to loan money to someone in the latter stages of their life. 

This may mean that the length of the agreement is shorter than preferred but as long as you can afford the repayments – while factoring in the interest rate – then it means you will have access to the loan you need.

Types of loan available

While the application process may be slightly different, the range of loan options is just as extensive for retirees:

  • Short-term loansShort term loans can give you quick access to funds from anywhere up to £5,000, with repayment terms usually lasting between 3-12 months. This is a great option for anyone who needs money in a hurry as the funds can typically be deposited in your account within 24-48 hours.
  • Secured loans: A secured loan requires you to use an asset of least equal financial value to the amount you want to borrow as security. Should you default the asset could be taken from you by the lender. This type of personal finance often allows you to lend larger sums of money but it does come with much greater risk.
  • Credit cards: You won’t receive a lump sum of money, but a spending limit on the card that in effect works in the same way as a loan. There are a wide variety of credit card options available to choose from, although due to their convenience it can lead to having a debt on the card for quite some time. 
  • Equity release: If you are low on income but have a lot equity you wish to remortgage to raise additional funds, some lenders may be willing to agree to this type of loan. Although you will still have to prove your current income is sufficient enough to manage the payments without defaulting.