Pensioner loans and what to look out for
Can pensioners get a loan?
There are two ways those on a pension can borrow money. One is through regular personal loans, however for pensioners these often come with very high interest rates. The other option is to apply for a pension loan from the government, which are generally a lot more affordable.
How do the personal loans work?
If you are on a pension, you may be able to secure a personal loan through a bank or other lender, however because of the perceived risk involved for the lender, they often charge very high interest rates. In fact, it's not uncommon to find pensioner loans online with comparison rates starting at almost 50% and going up to 135% or more.
These loans are often marketed as instant cash loans, small online loans, no credit check loans, unsecured loans, payday loans or same-day loans. They are never as cheap, and though they might seem attractive and easy to get - especially for pensioners with a bad credit record - when you rely on a fixed fortnightly pension, they can quickly become very difficult to pay off, leading to significant stress and even loss of assets - including your home.
The government pension loan
On the other hand, you may be able to increase your fortnightly pension payment through a government pension loan called the Pension Loans Scheme (PLS) which has a much more manageable interest rate of around just 4.5%. It is not a lump sum payment, but instead increases your regular age pension by up to half the maximum pension, making it easier to stay in control of your finances. It also removes the temptation to spend the lot at once.
The PLS payments accrue as a debt secured against the equity in your home or other Australian real estate asset and only has to be paid when you move out of or sell your property or it is recovered from your estate.
Are there other options?
If you have super, you may not need to take out a loan. You can receive up to $4,680 income from your super per year tax free, without it affecting your pension income - even if you're on the full pension rate. It allows you to enjoy an income which combines the government pension and super.