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Retirement is supposed to be the kickoff to your golden years. Sadly, it’s a big worry for many Americans who don’t have enough savings to provide enough money for a comfortable retirement income.
According to the Social Security Administration (SSA), about 21% of elderly married couples and about 45% of unmarried persons rely on Social Security for 90% or more of their retirement income. Reliance on social security benefits, with limited cost of living adjustments, can leave you in an extremely precarious financial spot. Thankfully, even if you depend on Social Security and need a loan, there are still some options for you.
How to Qualify for Loans in Retirement
Your Social Security check, pension, investment income, spousal death benefits, retirement accounts (IRAs), or annuities to secure a loan all count as income. Additionally, some energetic seniors still keep part-time jobs. All of this is income that can help you qualify for a loan.
Five Best Loan Options for Retirees with Bad Credit
These sites are worth a look and won’t harm your already fragile credit scores by inquiring if you can qualify for a short-term loan.
They ask you for all income and the amount you are looking to borrow, then you will fill out some basic personal finance information such as your social security number, address, and date of birth. At the end of the short 5-minute query, the lender will provide you with an estimated interest rate based on the length of time of the loan that you choose.
It is important to remember that your credit score can have a huge impact on your interest rate — one point can sometimes make a big difference in how much you’ll pay: 300-629 is bad; 630-689 is fair; 690-719 is good; 720-850 is excellent. Know your credit score. For example, if it is at 629, bring it up a point, and it will make a world of difference in the interest rate you get. If you know you’re going to need a loan, review your credit reports — copies are free at annualcreditreport.com — and make sure to fix any errors you find.
Here are a few recommended companies to check out.
Upstart promises “Fair & Fast Personal Loans” from $1,000 to $50,000 in 3-to-5-year terms at interest rates ranging from 6.76% to 35.99%. They promise that 99% of loans are funded within 24 hours, and there are no prepayment penalties.
Dwayne writes, “Easy and straightforward process. If you need to consolidate credit card debt this is the place to go for your loan.”
Lending Club offers “Personal loans to meet your financial goals.” You can:
- Borrow up to $40,000
- Receive money within 48 hours of loan approval
- Pay fixed interest rates and monthly payments.
There are no application or prepayment fees.
You can set up automatic payment withdrawals.
Roselyn from Texas wrote: “Thank you so much for valuing me as a customer, and coming through for me and my family at a trying time in this world.”
Best Egg offers “hassle-free personal loans for all of life’s financial needs.” They offer loans up to $50,000 with interest rates ranging from 5.99%-29.99% that are guaranteed for the life of your loan.
Leah wrote: “Easy, friendly process for a complicated application. I am so grateful to Best Egg for giving me the opportunity to borrow! Even though my application was unusual, I STILL got funded within three days of my application (whereas another organization had been stalled for 6 weeks). This will let me take steps towards a better financial future. Thank you!”
LendingPoint “enriches people’s lives by simplifying financial services and unlocking the power of possibilities.” It offers loans from $2,500 to $36,500 with rates ranging from 9.99% to 35.99% APR and terms from 24 to 60 months.
Shirley wrote: “Quick and efficient! Justin Baker was wonderful to work with. He was quick to respond. The whole process was painless, and I was able to take care of everything digitally.”
OneMain Financial provides “real lending solutions for real people.” Loans range from $1.500 to $20,000 and interest rates range from 18% to 35.99% APR, with a wide variety of repayment terms.
One borrower wrote: “I applied to one main financial for a consolidation loan upon which I never thought I would get approved. They blew my mind with an approval to consolidate all of my debt. I’m so very thankful for this company. I would recommend them to anyone who is looking to do the same.”
Payday Loans for Retirees
A payday loan offers a quick and easy solution when you need money fast, but it’s rarely the best option. Because of the sky-high interest rates and fees, many borrowers, particularly those on fixed incomes, can’t pay the loans back when they’re due in two weeks. Then they have to take out a second loan to cover the first, and so on. This creates a cycle of debt that can be difficult to escape.
Do a bit of homework before you turn to a payday lender. Cash advance apps offer a payday loan alternative that provides a quick boost of cash, but the fees are considerably lower. Check with your bank or credit union to see if they offer a loan that would help.
Can I Borrow Money from My Social Security?
No. There was a loophole that allowed you to “create” a loan from Social Security, but it was closed in 2010. It allowed you to collect benefits at 62, then at 70, repay the loan, and re-file as if you never even took a draw.
Another loophole was known as “file and suspend.” It worked like this:
- A worker at full retirement age or older applied for retirement benefits and then voluntarily suspended payment of their retirement benefits.
- The worker’s voluntary suspension permitted a spousal benefit to be paid to their spouse while the worker was not collecting retirement benefits.
- The worker would then restart their retirement benefits later, for example, at age 70, with an increase for each month retirement benefits were suspended.
File and suspend, too, have been eliminated as an option. It was revised in 2016 and now works like this:
- You can still voluntarily suspend benefit payments at your full retirement age to earn higher benefits for delaying.
- During a voluntary suspension, other benefits payable on your record, such as benefits to your spouse, are also suspended.
- If you have suspended your benefits, you cannot continue receiving other benefits (such as spousal benefits) on another person’s record.
Loan Risks for Seniors on Social Security
Just like with any loan, there are always risks involved.
Payday loans are the easiest to obtain for seniors because they have minimal qualification requirements, but they also come with the highest risk. One small mistake can dig you into a debt cycle that can take months or even years to escape. Think exorbitant interest rates, some up to 590%. Then, all the hidden fees are written in the fine print for when you default, are late or renew a contract. And if you have insufficient funds, your bank can charge you fees of up to $35 per day for non-sufficient funds (NSF).
If you cannot repay the loan and default, it will cause your credit score to take a huge hit. You could receive a court summons and have your Social Security garnished. The worst part is that it goes to a third-party collection agency to be ready for threatening, aggressive and harassing phone calls. Payday loans are the worst route to choose when needing a loan.
There are countless horror stories of working people who have lost their cars, gotten evicted, and paid $1200+ for a $300 loan.
What If You Qualify for Supplemental Security Income?
The stakes are even higher for borrowers who qualify for the Supplemental Security Income (SSI) program. The AARP reports that a single payday loan can leave you in danger of losing those benefits altogether.
SSI is a supplemental program that helps to support people with little or no income, or people with disabilities. SSI benefits are not funded by the Social Security fund. It supplements a traditional social security payment for many who otherwise wouldn’t have enough monthly income to survive. But the eligibility limits are very strict. In 2021, a person must have less than $814 a month in unearned income to receive SSI benefits. A couple can get SSI if they have unearned income of less than $1,211 a month in 2021.
If you take out a payday loan while you’re on SSI benefits, the lump sum deposit could raise your income above the monthly threshold, which will cost you a big chunk of change.
The maximum monthly federal SSI benefit for 2021 is $794 for an individual and $1,191 for a couple. So a two-week payday loan for $500 could push a couple’s income over the monthly limit, costing them $1,191 in SSI benefits the following month in addition to the fees and interest generated by the loan in the first place.
SSI benefits will not be restored until your monthly income reverts back to the amount it was before you took out the original payday loan.
In case this seems confusing, here’s the bottom line: if you need a payday loan and you’re on SSI, don’t take out a loan at all until you’ve contacted a credit counselor or the Social Security Administration to learn whether even a small loan could prevent you from qualifying altogether.
What Are the Payday Loan Alternatives For Retirees?
Unexpected bills can be particularly difficult to face if you’re on a fixed income, especially from high-cost health care emergencies. Payday loans should be the absolute last resort for anyone to consider, but most especially for seniors who are relying solely on government benefits. Payday loans are notorious for their exorbitant compounding fees, late fees, penalty fees, renewal fees, etc.
Try to find a less expensive loan or borrow from a friend or family member. It may be hard on the pride, but you will be surprised how much people are willing to help one another out if it’s not a chronic habit.
There are some unconventional ways for seniors to get extra cash: Look around for any historical memorabilia that may be valuable and sell it. You never know what dust-covered treasure could be hiding in the attic. Ask a young computer-savvy friend or family member to help you sell it.
Setting up a GoFundMe page or peer-to-peer lending is another excellent option. There are countless stories of strangers helping out other strangers, especially with medical bills. Share your story.
Then, the more traditional loans don’t rely on others to get you the cash you need.
Still Thinking About Taking Out a Payday Loan? Here are 11 More Alternatives For Retirees:
Home Equity Line of Credit (HELOC) or Home Equity Loan:
This is a line of credit taken against a percentage of the equity in your home.
Upside: You can use it as you want; the loan is tax-deductible, it has a low interest rate, no closing costs, no fees to withdraw.
Downside: Temptation of using your real estate as a piggy bank and paying the bare minimum, the interest rate may start low, and your rate may rise versus a fixed-rate loan, hidden fees such as check fees, payment shock at the end of a draw period, and eroding the equity in your home.
A Mortgage Loan or Refinance to Lower Your Monthly Payment.
Upside: It can save you cash to put towards what you need the extra money for, obtain a lower interest rate or get a fixed rate.
Downside: Your mortgage lender might charge high closing costs, there could be a longer timeframe to pay off the loan — it might even reset to a new 30-year mortgage — and, depending on current mortgage rates, the savings may be minimal. Plus refinancing takes time that you might not have.
This is replacing your current mortgage with a new one with a more considerable loan amount and taking the difference out in cash or tapping into your home’s equity.
Upside: Lower interest rate than a HELOC, tax-deductible, use the cash as you want, you can switch to a fixed loan.
Downside: Pay closing costs, takes longer to pay off the loan, depending on your interest rate, the savings may be minimal, refinancing takes time.
This allows you to borrow money against the equity in your home with no payments while you live in the house. It is repaid when a borrower sells the property, moves into a retirement home or upon the borrower’s death.
There are three types of reverse mortgages.
Single-purpose reverse mortgages are offered by some state and local government agencies, as well as non-profit organizations, but they’re not available everywhere. They’re usually the least expensive option.
Proprietary reverse mortgages are private loans that are backed by the companies that develop them. If your home has a higher appraised value and you have a small mortgage, you might qualify for more funds.
Home Equity Conversion Mortgages (HECMs) are federally-insured reverse mortgages and are backed by the U. S. Department of Housing and Urban Development (HUD). HECM loans can be used for any purpose, but they might be more expensive than traditional home loans, and the upfront costs are usually high. They are only available through FHA-approved lenders.
Upside: They’re geared towards seniors on fixed incomes, it provides a regular income, there are no monthly mortgage payments and there’s a “no negative guarantee,” which means you won’t have to pay back more than the home’s value.
Downside: This may affect pension or other government benefits, it reduces the amount of home equity and you can only estimate how much you owe since you don’t know what your future home value will be worth.
Curious about reverse mortgages? Watch this video to learn more:
Selling Your Primary Residence
There’s also the option of selling your home and moving to a new home or apartment. If you can find a place where the monthly payment is cheaper, you can use the proceeds from the home sale to pay off your debt. But you will have to pay a commission to the real estate agent, need a down payment for your new home, and have to foot the bill for moving.
United States Department of Agriculture (USDA) Housing Repair Loans and Grants
These loans are provided to very-low-income homeowners so they can repair, modernize or improve their homes. The grants are for these low-income homeowners to remediate health and safety hazards.
Upside: Loans and grants can be combined for up to $27,500 in assistance, borrowers have 20 years to repay and the interest rate is fixed at 1%
Downside: This is very specialized lending; your property has to qualify, the grant has a lifetime cap of $7,500 and the grant money must be repaid if the property is sold in less than three years.
If you own title to your automobile or have equity built up, you can quickly get cash with it as collateral. They are informally known as “Fast Auto Loans.”
Upside: The loans are fast and you can use the money as you want.
Downside: If you can’t repay the loan, you will lose your car. Loans have high fees and interest rates, the loan amount is only 25%-50% of the car value, and the loan terms are 15 to 30-days, similar to a payday loan.
Debt Consolidation Loan
A debt consolidation loan is a personal loan that combines several high-interest debts into one new loan, preferably with one lower interest rate. It can be offered by a bank or credit union.
Upside: There’s one single monthly payment, it helps to streamline finances, approval is quick, you can use the money as you wish, you might get a lower interest rate, it will reduce your monthly payments and it can help build your credit score.
Downside: You’ll pay high loan origination fees, the loans don’t fix the underlying root of your spending habits and you may pay more in interest over the life of the loan.
Student Loan Modification or Direct Consolidation Loan
Student loan modification can happen when you contact the lender to lower or pause your student loan payments. Direct consolidation loans are similar to debt consolidation, where the multiple federal student loans are rolled into one payment.
Upside: They give you access to additional loan repayment plans and forgiveness programs, you can get a fixed rate and there are several repayment plans.
Downside: You may pay more in interest over the life of the loan and consolidating can cause you to lose borrower benefits associated with current loans.
Unsecured Lines of Credit
This type of loan is not secured with collateral. A personal line of credit is one example.
Upside: There’s no risk of losing personal property, you have flexibility in how much or how little you want to draw and you only pay interest on the amount you draw.
Downside: If you default, the lender can come after you; you’ll pay higher interest rates; the interest rates are variable; loan amounts are smaller and sometimes you’ll have to pay a balloon payment.
Credit Card Cash Advance
This is just like taking money from an ATM, but instead of your debit card, you are using your credit card. It is a short-term cash loan from your credit card.
Upside: Easy and convenient
Downside: Interest rates are high, loans are capped at a few hundred dollars, you’ll pay extra bank fees and there will be cash advance fees.
Why Do Senior Citizens Turn to Payday Loans?
Here are a few simple but disheartening reasons: there are not enough borrowing options for seniors, they have no savings or there’s a medical emergency. The only upside of a payday loan is that it is speedy and easy to obtain. But expect to pay a hefty price for this high-risk loan.
The Bottom Line
Retirement planning can be difficult for older Americans because life often intervenes. And longer life spans mean your limited pool of retirement money needs to last longer. Experts recommend planning to have an income stream that lasts until age 90.
Many experts say your retirement income should be about 80% of your final pre-retirement salary. But many Americans are projected to fall far short of that, and limited income in retirement could lead you to need the occasional short-term option.
There are still plenty of options available for seniors on fixed incomes. Do some research to explore the choices with the lowest rate and risk and stay away from payday loans unless you’ve exhausted all of your other options.