People often have a misconception that they can’t get a loan after retirement. The perception has been the result of banks asking for sources of income, salary slips and several work-related queries when applying for a loan. Usually, people apply for loans when they are working and require financial support to achieve their goals. However, sometimes retirees may also need financial support and a loan can be of great help to them. So, let us discuss some of the useful ways to get a loan after retirement.

Loan Against Collateral

Collateral is an asset pledged to a bank in lieu of a loan. You get the loan and start paying equated monthly instalments (EMIs). Once the last EMI is paid, the asset is unpledged and the ownership is transferred to you. A collateral loan works like an assurance to the lender that if the borrower fails to repay the borrowed money, they can liquidate the pledged asset to recover their money. Some of the popular collateral loans are a loan against fixed deposits (FDs), a loan against gold, a loan against securities, etc.

Loan With A Guarantor

Another way to get a loan quickly is to have a guarantor. The guarantor will sign the document, essentially ensuring the bank that the loan will not be defaulted. In case, there is a default, the guarantor will be responsible for repaying the loan amount. Since there is less risk to banks, you can get a loan backed by a guarantor without much hassles.

The guarantor can be your spouse who is getting a pension, family members, friends or any third party with a good credit score and adequate source of income. The limit of a loan normally depends on factors like the pension being drawn, the age of the borrower, credit score, etc.

Pension Loan

Retirees who are earning a regular monthly pension can get a pension loan from the banks. It is similar to a personal loan. There is no restriction on how the loan amount is spent. Having a guarantor can help in getting a bigger loan amount. Many banks require that the pension account be in the same bank.

Reverse Mortgage Loan

The reverse mortgage loan is another way to get a loan easily from a bank. You can mortgage your home and obtain a loan against it. The home should be owned by the borrower with a clear title and should be free from any encumbrance. The borrower can opt to get part of the loan in a lump sum and the remaining amount in regular monthly income. At the end of the loan tenure, the borrower has to pay back the loan amount with interest to get the property back. In case the borrower is not able to repay it, the bank can recover their money by selling the property. Banks consider factors such as the residual life of the property, and the eligibility of the borrower for deciding the loan amount.

Before applying for a loan after your retirement, make sure you are comfortable to repay the EMIs on time and have the plan ready to close it within the scheduled tenure. 

The author is an independent financial journalist.