Getting a loan when you’re retired presents its own unique set of challenges. Most retirees are on a fixed income, and if you’re only getting a limited amount, lenders may be wary of issuing you a loan. It’s important to choose the right type of loan, because if you don’t you may end up with a loan that you can’t afford due to high interest rates. Consider the following options to find the best one for you.
The Ideal Solution – A Loan through a Bank or Credit Union
When it comes to personal loans, banks and credit unions still reign supreme. These tend to have the lowest interest rates and offer terms of a year or more, giving you plenty of time to pay back what you borrow. Because of the favorable loan terms, banks and credit unions are also the strictest when it comes to minimum loan requirements. This means it can be difficult to obtain a loan through either type of financial institution.
Your best bet is with either a bank or credit union that you already use. If you’re a customer there, then they’ll want to keep you satisfied and are more likely to issue you a loan. They also have more knowledge of your financial history, which makes it easier to trust you.
The Alternative Option – A 0-Percent APR Credit Card
This won’t work if you need actual money deposited into your account, but if you can make due with a revolving line of credit, then a 0-percent APR credit card is an excellent alternative to a loan. The only catch is that you need to pay off as much as you use by the end of the card’s introductory period, when the APR goes up to a normal amount. Introductory periods are usually 12 months, but some card issuers offer cards with shorter or longer time frames.
This solution won’t work in every situation, but if you only need extra money for 12 months or less, then you can get it with a 0-percent APR credit card and avoid paying any interest.
The Middle Ground – Online Lending
There are two types of online lenders available:
- Online lenders that issue loans themselves
- Online lenders that facilitate peer-to-peer loans through their marketplaces
The difference is that with the former type of lender, you’re getting your loan from the company. With the latter, you’re getting your loan from investors who use the lender’s marketplace.
Both options tend to have moderate interest rates and loan requirements. They’re more flexible in terms of who they’ll lend to than a bank or credit union, but that comes at a cost in the form of higher interest.
The Last Resort – Title Loans
You’ve probably seen these advertised on TV all the time – title loans where you give the lender your car title and get a loan that depends on the current market value of your car. There are a couple benefits of these loans, including:
- Speed – you can typically get a title loan within an hour after applying at the title loan company’s office
- No credit check – the lender doesn’t need to check your credit to issue the loan
However, these benefits are outweighed by the massive interest rates. In quite a few states, an auto title loan will have an APR of 300 percent, and the term will be a mere 30 days. This makes it easy for consumers to end up trapped in a debt cycle as they need to keep renewing loans that they can’t pay off. Avoid these types of loans as anything other than a short-term last resort.
As a retiree, you need to choose your loan carefully. Start by checking out what’s available through banks or credit unions. If neither is an option, try going online.