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 many types of loans, 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 as well. They 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 loans grants, income proof works as security. It indicates the repayment capacity of the borrower. Income proof can be salary slips, bank statements, Form 16, etc. Business owners or self-employed people can show 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 only. They are:
1. 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. Pensioners can use the cash for multiple purposes without any obligation.
2. 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 as well as the age limit. 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.
3. Flexible Tenure
There is a flexible tenure with the number of months one wants to avail of a personal loan for pensioners. 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 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 the land, home, or any other such asset as a security to borrow a loan for pensioners. As mentioned earlier, the collateral requirement is usually for retired persons who are more than 70 or 75 years of age. The age cap varies according to the banks. 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 eligible for pension or a child who earns and so. This is because senior citizens are approaching old age and 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.
6. 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.
7. Managing Financial Emergencies
Financial problems or needs can arise at any time. 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 ?
Several banks like State Bank of India (SBI), PNB (Punjab National Bank), United Bank of India (UBI), etc. provide personal loans for pensioners. Senior citizens can either go to the bank’s website and apply online. Check eligibility criteria and the amount they are eligible for. After submitting all the required documents, bank officials may verify the details and then approve the loan. The bank disburses the loan as soon as they approve the loan post confirmation of the details.
Alternatively, the retired people can approach the bank and its branch of their choice. They can request personal loans for pensioners through form submission and other relevant documents. Bank will affirm the details and approve the loan amount 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-
1. 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. It should be a minimum of Rs. 25,000/month if the senior citizen resides in Delhi or Mumbai.
2. 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.
3. 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. The citizen must be a resident of India.
4. Credit History
Loan or credit providers always check 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.
5. 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 and 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.
6. Account Holders in the Lending Bank
Most of the 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.
7. 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 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 go 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.
8. 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 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 18 months pension equivalent to it
In both cases above, this is for borrowers below the age of 75 years. For above 75 years, 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
Also, the provision of collaterals can make a difference. Secured loans, in general, are cheaper than unsecured ones. Hence, if there’s security, the loan amount may increase. For example, BOI provides a 15-month pension to pensioners below 75 years of age for unsecured personal loans. It provides a 20-month pension if it is a secured personal loan for pensioner
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 retired people. Their pension can be a regular income but can help them seek a lump sum loan in difficult times. However, with many terms and conditions of the bank, they 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.