Why do retirees need bank loans?
There are lots of reasons people who are retired might need or want to take out a loan with a bank. Some retirees own their house and have a car but they don’t have much cash, so when an emergency situation comes around, they find themselves strapped for cash. Other retirees are looking to buy a smaller home and refinance their mortgage, get a second house or take out a loan to minimize their taxes. Whatever your reason for taking out a loan in retirement is, you need to know that it is entirely possible to get a loan in retirement and the process is pretty much the same as if you were applying for a loan while being employed. The only difference is that you may need to take a couple of extra steps to show the bank that you actually have the money necessary to repay the loan.
How to choose a loan as a retiree?
In addition to personal loans, retirees are eligible for many different types of loans. For instance, most retirees who apply for loans get new mortgages or refinance their old ones, as this allows them to take advantage of various tax deductions when it comes to the loan interest. Additionally, it is also possible to get an auto loan or a securities-backed line of credit as a retiree.
What do banks look at before issuing a loan?
For most loan applications, banks look at three things about the applicant’s financial situation: assets, credit score and income. Usually, income is the part that presents the most problems for retirees, particularly those who only receive social security payments. If you also have regular 401k withdrawals and investment payouts, it will be much easier to get a loan. If you don’t have a lot of regular income, the bank can try using your assets to qualify you for a loan. Lastly, it’s best to have a credit score of 720 or more for seniors who want to get a loan.
How much should retirees take out in a loan?
Even though you might be qualified for a loan, this doesn’t mean that you should take one out. Typically, people in retirement only have a limited amount of money that needs to last them an unknown number of years. And with life expectancy constantly rising, most retirees need to save at least 20 to 30 years worth of spending before they can retire. Taking out a loan or a mortgage can quickly drain your savings and leave your family with a large debt after your death, so it’s best to work with a professional to determine what type and amount of loan is right for you.