Can You Get a Personal Loan After Retirement?

Obtaining most loans requires a steady source of income. When individuals retire, they are often left with just their pension. Is borrowing from an institution still possible in this situation? In fact, there is more than one way to secure funds outside of your nest egg. 

You may suppose that since a salary is no longer paid, you are ineligible for any type of lending. Fortunately, this is just a misconception. You could still buy a car or anything else on credit provided certain requirements are met.

How to Qualify

Your lender will check whether your potential average monthly income is sufficient. The target amount is calculated by two methods. The first one is “drawdown on assets”, which means total income includes the monthly payments withdrawn by the bank under the agreement. 

Alternatively, “asset depletion” subtracts such payments from your overall assets. Next, 70% of the remaining sum is divided by 360 months. In both cases, what gets added is an income from part-time jobs, annuity income, pension income, and Social Security benefits.

If the collateral is required, this could be your car, property, or other tangible assets that guarantee the loan. In case of failure to repay, the collateral is seized by the bank. Loans without such requirements are referred to as unsecured, and they have significantly higher interest rates.


Compare these types of lending with personal loans to see the convenience of the latter.

1. Mortgage

Here, your home serves as collateral. However, income requirements are difficult to meet for any. 

2. Home-Equity 

The general requirements include a high credit score (at least 620) and at least a fifth of equity in your home. 

3. Cash-Out Refinance 

In this scenario, your present home is refinanced for more than you owe but less than it is worth. This difference becomes a cash loan, which is secured. 

4. Reverse Mortgage 

You receive a lump sum or regular income, and the loan is only paid back when you move out or die. You or your heirs could sell the house or negotiate to refinance.

Important Caveats

Under no circumstances should you resort to taking money from your 401 (k) or any other retirement plan or account. This way, both your future income and your savings will be hit. Any loan is better than this.

What to Expect

As long as you meet the requirements, you could be given a secured or an unsecured loan, both long-term and short-term. It must be noted that the latter is the most precarious type of lending, and should thus only be used in emergency situations. Personal loans are the most accessible for pensioners.

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