The Melbourne Mercer Global Pension Index, an authoritative report in the study of pensions and retirement systems in the world, has found in its latest report that Singapore’s CPF system is the best in Asia. It also the 10th best in the world, beating countries like Germany, Ireland, USA and France. It grades the pension scheme of different countries across the world using three categories - adequacy, sustainability and integrity. However, having the best pension scheme doesn’t mean a senior Singaporean will never be in need of extra cash after retirement. Sudden illnesses, home renovations and travel plans can all be the reason for some extra cash being a necessity.
Unfortunately, banks in Singapore are not willing to extend personal loans in Singapore to those who are 65 years and above. The reason being, retired people are seen as a high risk group with a higher probability of loan defaults. Some of the best deals in the market may be unavailable to pensioners because they do not meet the eligibility criteria that lenders look for, usually an age limit of 21 to 65 years.
A pensioner doesn’t generate fresh income. To make up for this, they need to make sure that other aspects of their loan application are presented strongly for the banks to consider extending loans.
In general, risk is the main point lenders consider when reviewing a credit application. A pensioner’s credit history, income and age can all point to being a high credit risk and as a result, the lenders may decline their application. As age is considered a risk factor, senior citizens and pensioners experience greater difficulty in getting a loan processed. However, if you can show that you are capable of servicing your loan for the entire period, or prepay the interest amount, you may still succeed in getting your application approved.
The main requirement in obtaining a loan regardless of age and employment is the need to show is that you can actually pay it back. If the lender believes that you will not face any difficulty in making the scheduled payments on time during the entire term of the loan, you will probably get your loan application processed. Provide all information regarding your assets and income to that end.
Even if you have strong income as a pensioner, a number of factors such as prolonged illness or hospitalisation may lead to financial difficulty. Being a homeowner, you may be able to access any equity or funds tied up in your property and secure the loan. Having a secure asset will convince the lender that you can make the repayments of the loan.
Having a loan insurance ensures the lender that your loan repayments will be covered in case of involuntary unemployment, injury or death. Pensioners usually have to pay a higher premium than average due to the advanced age posing greater risk. A lender may, however, need you to mandatorily obtain a loan insurance for approving your loan.
The requirements for loan approval in case of a pensioner are different.
With normal loans one has to provide proof of income by producing copies of paychecks or tax presentations. But with retirement loans, a pensioner has to produce copies of pension or retirement income statements as proof of income. Many lenders also accept state pensions as income.
An Important Point to Keep in Mind: No matter how urgent your loan requirement, make sure you have a plan to repay it. Borrow only as much as you need and keep your tenure as short as possible to avoid high interest charges.