Many retirees think they do not qualify for a loan but this is certainly not the case. As a retired person, you can still qualify for a home, car, or emergency loan.
While many retirees tend to borrow from their retirement plans such as the 401(k) and IRAs, there are many lenders out there willing to provide credit to people who are in their retirement.
You must however meet their requirements. One of the main requirements is that you should have a pension income and social security benefits. These loans can be secured or unsecured, depending on your situation. This guide will look at the different types of loans available to you during retirement.
A Mortgage Loan
This is one of the most common types of loans for people in retirement. Getting a loan to buy a home is a secured loan, because the house you want to buy will then act as collateral. If you default, then the bank will be forced to foreclose and recover their money.
The only issue with this loan is the fact that you are required to make payments each month. Since you do not have an income from employment, this may be challenging. As a result of this, the approval process for your application may be longer than expected.
To apply for this type of loan, the bank will look at whether you have any savings or investments.
A Home Equity Loan
The home equity loan is slightly different from the mortgage loan. A mortgage loan is given to purchase a home, while a home equity loan is taken out against the home you already own.
If your home accrues in value, you will be able to take out a loan against the accrued amount. If, for example, you purchased your home 20 years ago for $200,000, and it is currently worth around $400,000, you will have around $200,000 in equity.
Cash-out Refinancing Loan
This is another loan alternative to home equity. Unlike the loans listed above, this process involves refinancing the existing home for more than what the borrower owes the bank, but less than its market value. The extra amount is the secured cash loan.
Reverse Mortgage Loan
This type of loan provides a retiree with regular income based on the lumpsum value of their home. This loan is not paid back until the owner dies and the house is left vacant. At this point, the heirs of the estate will then sell the house in order to pay off the loan.
This loan only works well if no one wishes to inherit the house after the death of the owner. It is a great way to ensure that you have a regular source of income during your retirement years.
Car Loan
Yes, you can also get a car loan if you wish to purchase a car. This is another secured loan, with competitive interest rates. This type of loan is easy to apply for and is available to retirees.
Debt Consolidation Loan
If you are in too much debt, or you are servicing too many loans while retired, do not worry. As long as you have a source of income, you can qualify for a consolidation loan that will ensure that all your loans are compressed into one.
Consolidation means that instead of servicing many loans with high interest rates at the same time, you will have only one loan that is reasonably prices. This also means that you save on the overall cost of the loan.
Conclusion
Borrowing money in retirement no longer has to be difficult. You will need to have a steady source of income or some assets that can be used as collateral in case of default.
It is however important to think hard before making this decision in order to have a stress free experience.
