A personal loan for pensioners is a beneficial facility that can help senior citizens to deal with financial adversities. Money requirements or cash shortages can hit us any time, even after retirement. In such situations, loans can be of great help. Out of the various types of loan options available, personal loans draw an advantage. It can be put to a multitude of uses instead of any one specific purpose like that of home or education loans. Some banks have extended the loan facility to senior citizens and retired pensioners, which provide personal loans for pensioners subject to certain terms and conditions. Banks lend personal loans against pensions considering them as a source of income.
How Personal Loan For Pensioners Work?
Loans are always given against some kind of guarantee or security. Personal loans for pensioners also require the same. In the case of personal loan grants, income proof works as a security. It indicates the repayment capacity of the borrower. Income proof can include salary slips, bank statements, Form 16, etc. Business owners or self-employed people can show their balance sheets or audited financial documents, tax returns, and bank documents.
Retired pensioners do not have these proofs except if they have a self-owned business. Otherwise, they cannot show salary slips or any other monthly income source. However, if they are pension account holders, then their pension can serve as income proof. They can avail of personal loans for pensioners by showing their pension account’s bank statement. Most personal loans do not need a guarantor, co-applicant, or collateral. However, some loan providers give personal loans for pensioners against some kind of assets like land, property, or any guarantor or co-applicant. This is especially when the retired person exceeds an age parameter.
Benefits of Personal Loan for Pensioners
Personal loans for pensioners have several advantages which include the common benefits of personal loans as well as those facilities that are exclusive to senior citizens. They are:
- Multiple Uses
A personal loan for pensioners is not tied to a specific purpose like any personal loan. You cannot use a car loan for anything else than to buy a car. However, you can use personal loans to remodel a house, buy a vehicle, or personal expenses, etc. Even pensioners can use the amount borrowed from personal loans for pensioners for multiple purposes without any obligation.
- Rate of Interest
There is a fixed rate of interest on the loan amount. Some banks also offer a preferential rate of interest to senior citizens. However, these rates may be different for various loan providers. Moreover, the rates for the personal loan for pensioners may differ as the age of the pensioner goes higher. It usually differs for age groups of below 70 years, above 70, and those above 75 years of age.
- Flexible Tenure
The personal loan for pensioners has a flexible tenure for repayment. One can calculate the total repayment amount taking into consideration the ROI and period of time. Just like the interest rates, the time for which the banks lend loan against pension may also vary. It depends on the age of the borrower and the terms of the lender.
Personal loans do not require any asset to be pledged as only income proofs are enough. However, some banks/financial institutions offer personal loans for pensioners against collateral, which works as an added benefit for senior citizens. One can also pledge land, home, or any other such asset as a security to borrow a loan for pensioners. The collateral requirement is usually for retired persons who are more than 70 or 75 years of age, varying from bank to bank. Secured loans may also get longer tenures and concessions on ROIs.
Usually, personal loans do not need any co-applicant or a guarantor. However, exceptions exist for elderly senior citizens to assure secure repayment from them. Banks may require a co-applicant or a guarantor to provide personal loans for pensioners. The guarantor can be a spouse who is eligible for pension or a child who earns and so. This is because senior citizens are approaching their old age and eventually, death. Although pension serves as an income source, it becomes invalid if the pensioner-cum-borrower dies. Hence, a co-applicant/guarantor guarantees the repayment of the loan amount from the co-applicant or guarantor.
- Processing Fee
An additional advantage of personal loans for pensioners is that the processing fee might also be lower for senior citizens. Some lenders may not charge any fee. However, this depends mainly on the loan providers. Also, the processing fee for a loan against pension may increase if the borrower’s age exceeds 70 or 75 years.
- Managing Financial Emergencies
Financial needs can arise at any time, without any heads up. Senior citizens, too, may have to deal with any such emergency. They may find themselves in a fix if there’s a dire need for money and the limited source of pension income is not enough. With the facility of personal loans for pensioners, even retired people can help themselves during financial contingencies.
How to Apply for a Personal Loan for Pensioners?
Several banks provide personal loans for pensioners. Senior citizens can either go to the bank’s website or apply online for a personal loan after checking the eligibility criteria and the amount they are eligible to borrow. After submitting all the required documents, bank officials may verify the details and then approve the loan, post verification of the details. The bank then disburses the loan amount which gets credited to the borrower’s account in 2 to 3 working days..
Alternatively, retired people can approach the bank and branch of their choice. They can request personal loans for pensioners by submitting the requisite form and other relevant documents. Bank will affirm the details and approve the loan amount that the senior citizen is eligible for.
Usually, banks provide personal loans against pensions to those who hold a pension account in their banks. Whether the senior citizen opts for an online or offline mode of application, there are certain requirements that s/he must fulfill.
Requirements to Avail of Personal Loan for Pensioners
When applying for personal loans for pensioners, banks seek various documents and proofs before passing the loan. These are various parameters against which the banks judge the borrower’s credibility and repaying capability. The key requirements that a senior citizen needs to fulfill to take a personal loan for pensioners are listed below-
- Income Proof
The first and foremost requirement is income proof which is the pension account in case of personal loan for pensioners. A senior citizen needs to present the pension papers or bank summary of regular monthly pension income. This is the reason banks normally lend loans against pensions to pension account holders of their bank. The verification process is easier and it assures the repayment. You must have a pension of at least Rs. 20,000 per month. However, the same pension amount should be a minimum of Rs. 25,000/month if the senior citizen resides in Delhi or Mumbai.
- Identity Proof
Identity proofs are a must for a personal loan for pensioners like any other loan or bank deposit. Submit KYC documents like PAN, Aadhaar, etc. as well as passport photographs.
- Address Evidence
Senior citizens need to submit residential address proofs to avail of personal loans for pensioners. Electricity bills, voter IDs, etc. can serve as evidence for address proof. Additionally, it is mandatory for the citizen to be a resident of India.
- Credit History
Loan or credit providers always check current/previous loans, debt, and credit history. Maintain a good CIBIL score especially if you have a credit card to apply for a personal loan for pensioners. It indicates the borrower’s creditworthiness and helps to win the lender’s trust. Also, if there are delayed or missed payments, these may count as negatives to disqualify for loans.
- Existing Loans
It matters if there is an existing or an unpaid loan to avail of personal loans for pensioners. Lenders check the debt to income ratio to calculate if the pension holder can repay the loan. Banks may be reluctant to provide pension loans to those who already have a loan if it exceeds their repayment range.
- Account Holders in the Lending Bank
Most banks provide personal loans for pensioners if they have an account in the same bank. It may not necessarily be the same branch. However, if the borrowing bank branch and the pension account are the same, the process becomes easier and faster. For instance, SBI Personal Loan For Pensioners is available only if the pensioner draws the pension from an SBI branch. SBI lends to state/central government pensioners, defense pensioners, or family pensioners who are SBI account holders. Similarly, banks may have specific T&Cs to lend personal loans to pensioners.
- Age of the Borrower/Pensioner
The age of the borrowers matters a great deal when availing of a loan. Personal loans are income-based loans where income serves as security. Banks consider income as a source of repayment. Retired people get a pension as long as they live. It serves as income proof in case they borrow personal loans for pensioners from banks. However, banks are at the risk of providing personal loans to senior citizens fearing the death of the borrower. The pension stops after the death of the pension holder and the income-cum-repayment source goes invalid. Thereby, banks have age caps for personal loans for pensioners. For instance, SBI does not provide personal loans against pensions to senior citizens above the age of 76.
- Abiding by the Terms of the Lender Bank
The loan limit, rates, and the number of EMIs may vary according to the lenders. Also, different banks have different lending amounts and rates for various age groups. The loan amount is less and rates are higher for availing the personal loan for pensioners above the age of 75. Also, the tenure gets shorter and a lesser number of EMI payments are available for the borrowers.
Loan Amount Calculation in Personal Loan for Pensioners
The loan amount varies according to the bank’s policy and the age of the borrower. It also matters if it is secured with collateral. Here are a few points that explain the calculation process of the loan amount:
- Number of Months
It is calculated as ‘n’ number of monthly pension payments or a certain lump sum. For example, the Bank of India (BOI) lends a maximum of Rs. 5 Lakh or 15 months net monthly pension up to Rs. 5 Lakh. Similarly, the Central Bank of India (CBI) also lends up to a maximum of Rs. 5,00,000 or an amount equivalent to 18 months of pension.
- Age Cap
For pensioners/applicants above 75 years of age, BOI lends 3 times the monthly pension income to a maximum of Rs. 50,000. Whereas, CBI provides a 12-month pension to a maximum amount of Rs. 2 Lakh. Similarly, all banks have their age cap and loan amount range.
- Secured Personal Loan
The provision of collateral makes a difference. Secured loans, in general, are cheaper than unsecured ones. Hence, if there’s security involved, the loan amount may increase. For example, BOI provides a 15-month pension to pensioners below 75 years of age for unsecured personal loans. However, it provides a 20-month pension if it is a secured personal loan for pensioners.
The repayment amount may decrease with concession on rates of interest. Secured personal loans for pensioners may offer lesser interest charges. For instance, BOI offers a rebate of 1 basis point on the interest rate if the borrower provides liquid security of more than 25% of the loan amount. Also, the normal tenure is 3 years but the EMIs may be extended if the collateral is given. In exceptional cases, it can be up to 60 months.
Wrapping it up:
Personal loans for pensioners are undoubtedly a boon for senior citizens and retired people. While their pension can be a regular income, personal loans can help them seek a lump sum loan in difficult times. However, with the terms and conditions of every bank, borrowers must check their eligibility for personal loans. They should see if their age, pension amount, and other specifications qualify for personal loans for pensioners in India or not, before applying for a personal loan for pensioners.