If you retire from work and have a minor cash flow problem, borrowing money could be your only way to access finance. Loans are financial products that allow you to access a lump sum of money and pay it back in monthly instalments until the debt and interest are paid in full.
If you don’t have any other assets to secure a loan against, you might be able to borrow money against your pension, which means the lender will recover their money through your retirement funds if you default on the loan.
Pension loans are similar to traditional secured loans, which use your home as an asset, so there are lots of things to consider before committing to one.
Please note: Believe Money is a specialist loan broker dedicated to helping our clients find financial products for their needs. While we don’t offer loans secured against pensions, we can give you guidance should this be a route you’re considering going down.
Is it possible to get a secured loan against my pension?
The short answer is yes.
The longer answer is – we don’t offer them as they have numerous pitfalls and often aren’t considered reputable. In fact, the Financial Conduct Authority released a warning about firms providing these services, as many aren’t authorised or regulated.
Most importantly, these loans often come with high interest rates and limited security, similar to payday loans.
Getting a Self Invested Personal Pension (SIPP) loan
If you have a self-invested personal pension (SIPP), you can borrow money from it for another investment. For example, some people release the money from their pension fund to purchase a commercial property, but most firms will let you borrow up to 50% of the fund.
Also, you can only buy a residential property if you use it commercially. However, borrowing against self-invested personal pensions is often complex, and you’re limited on what you can do with the money.
People often avoid them due to the pitfalls, and seeking alternatives can protect your pension scheme.
What are the alternatives to borrowing money against your pension fund?
Reaching retirement age shouldn’t restrict you from borrowing money, but there are some things to consider. Lenders usually look at how much security they’ll have; your age will impact the types of loans available to you.
Before applying for any type of financial product, it’s essential to understand what you’re getting into and the risks involved. Some people seek support from an independent financial adviser, but you can also contact Believe Money.
Our brokers work for you and help you find the best borrowing solution. Here are some alternatives to borrowing against pension funds.
Personal loans
Many people choose unsecured loans, as they don’t use your home as an asset and can be beneficial for consolidating debts or other purchases. Most lenders let you borrow between £1,000 and £25,000 and pay the money back over up to five years.
However, many lenders won’t offer you a loan if you have adverse credit, but there are some personal loan options available. Of course, you’ll have higher interest rates and lower loan amounts if the lender considers you a high-risk borrower.
Is there a maximum age limit on personal loans?
In most cases, yes. While some lenders set the maximum age at 70, others will offer a loan if you’re under 75. The best way to determine your eligibility is by speaking to a dedicated broker who will find an unsecured provider that matches your needs.
Mortgages
Remortgaging your property or extending your current mortgage can help you improve your financial situation and receive a cash payment to enhance the property, adapt it, or consolidate other debts.
You can go through your current lender or transfer your mortgage to a new provider, potentially giving you fixed rates. However, it’s also important to remember that you’ll still have to budget for repayments, and extending your mortgage is a big financial decision.
Can I get a mortgage if I’m over 60?
There are age limits associated with extending your mortgage, but it depends on your lender. For example, some will set the limit at 75, while others might be stricter. You can still extend your mortgage, but you’ll have to clear it within a specified time.
For example, if you’re 65 and want to extend the mortgage, you’ll have ten years to clear it (if the lender’s maximum age limit is 75).
Secured loans
Also known as homeowner loans, secured borrowing uses your property as an asset. In simple terms, lenders review your application based on the equity you own and allow you to borrow a percentage of that.
If you stick to your monthly repayments, you can clear the loan and retain complete property ownership. However, defaulting means the lender can repossess your home, the main risk of secured loans.
Equity release
Equity release plans are viable options for releasing some of the equity you’ve built in your home. You can access instant cash without needing to sell the property or downsize, but the lender receives their money when you pass away.
However, equity release does come with interest rates, which will impact the money your beneficiaries receive.
What are the pros and cons of a loan while on pension?
Whether it’s a personal loan or debt secured against your home, it’s essential to consider the financial implications before deciding. Many people take out a loan without thinking about the pros and cons, but weighing them up ensures you go into the process and understand your responsibilities.
The pros of taking out a loan:
- Access money: Whether you want to pay for home renovation, consolidate your debts or even go on that dream cruise, getting a loan gives you a lump sum to fund purchases.
- Manageable: Most loans come with fixed repayments, so you can plan and manage them effectively.
- Controlled borrowing: Once you have the loan, the money is yours. In contrast, credit cards or lines of credit can often mean you spiral into debt because it’s harder to set limits.
- Cost-effective: Depending on the lender’s credit check and the loan term you’re offered, they can be highly cost-effective—especially if you get fixed rates.
- Security: Unlike pension loans, most secured and unsecured lenders are regulated and authorised by the FCA.
The cons of taking out a loan:
- Interest rates: All loans will come with an interest rate, but even fixed interest requires budgeting. Some people underestimate their payments and find they struggle to manage the debt.
- Potential losses: If you default on a secured loan, you could lose your property. It’s also important to remember that other loan options, such as personal loans, can still result in legal action if you don’t meet the repayments.
- Fewer options: As lenders have age limits on their products, you might have fewer options.
- Impact on beneficiaries: Equity release can impact your beneficiaries as they will receive less money after you pass away.
Discover your loan options with Believe Money
Borrowing money in later life can help you access cash and pay for major purchases, but the range of solutions available can feel like you’re swimming against a tide of options.
Taking out a loan with Believe Money gives you access to the best deals and ensures you receive support throughout the application process. Our dedicated brokers work for you, looking at your personal circumstances and matching you to a network of specialist lenders.
Please feel free to contact us today for a free consultation. There are no upfront fees or obligations to get a loan with us.
FAQs
I’m a pensioner with bad credit. Can I get a loan against my pension?
Getting a loan against your pension isn’t advisable, as the FCA doesn’t regulate many lenders. However, there are plenty of other loans available, including secured and personal loans.
Homeowners don’t necessarily need good credit scores to take out a loan as the lender bases their decision on available equity.
What happens to my loan if I die?
Your estate will repay the loan when you pass away, depending on how much money you leave behind. In most cases, high-priority loans are paid first, and then the estate will pay for other debts until there’s no money left.
In some cases, the debt will be written off, but it’s essential to talk to your lender before making a decision.
What are my borrowing options if I’m on benefits?
If you’re receiving a means-tested benefit, including Universal Credit, Income Support or Pension Credits, you can apply for a budgeting loan from the DWP. These loans help you fund purchases, including home repairs and general expenses.
However, you have to repay these loans, usually from your benefits.
