Pension Loans: Who Can Apply, Interest Rates, Tenure, And Other Key Details

If you are retired and depend on a pension, could you avail of a loan? Yes. Though there are various types of loans against your tangible assets, you can also avail of a pension loan. There could be occasions when one needs more money than is available in the bank account. For pensioners, pension loans could be an easy solution. Just like personal loans, this loan also does not require much documentation.

What Is A Pension Loan?

A pension loan is a loan against a pension and requires no other assets as collateral. It is a personal loan for pensioners instead of salaried individuals. Typically, a bank provides pension loans only to those retirees whose pension is credited regularly to an account maintained with that bank.

Several banks, including the State Bank of India (SBI), Bank of Baroda (BoB), Union Bank of India, Punjab National Bank (PNB), Indian Overseas Bank (IOB), and non-banking financial companies, including Bajaj Finserv and more, offer loans against pension to retired individuals. Few banks provide these online as well, with just a few clicks.

Let us delve deeper into the details. 

Who Can Avail Of A Pension Loan?

• The applicant should receive a pension in an account with the bank from which the loan is requested

• Typically, banks offer this loan up to the age of 75 years; however, a few banks don’t have any upper age limit. For example, the Indian Overseas Bank (IOB) has no maximum age bar for pension loan applicants 

Can Someone With A Pension Plan From Insurance Avail Of This Loan? 

Ajay Kumar Srivastava, MD and CEO, Indian Overseas Bank, clarifies, “At present, this loan product is limited to government pensioners only”. He adds that going forward, based on market dynamics, banks can explore designing a product for such types of pensions, too.

Documents Required:

As a personal loan for pensioners, it doesn’t require extensive documentation. The only documents needed to avail of a pension loan are proof of identity, proof of address, and pension payment order (PPO) number.

Note that pension loans are unsecured as the bank doesn’t obtain any asset as collateral. But they do ask for a guarantee from spouse, and from legal heirs in case of a family pension.

What Is The Liability Of A Guarantor?

Srivastava explains, “Legally, the liability of a Guarantor is equal to the Borrower, and the same applies in Pension Loan also”.

How Much Can One Borrow?

Different banks have different conditions regarding the loan amount. The maximum amount is typically Rs 10 lakh. Few banks also have age criteria to determine the loan amount.

• For example, Punjab National Bank (PNB) offers loans based on the borrower's age. For borrowers up to 70 years of age, the maximum loan amount is Rs 10 lakh. For borrowers aged between 70 and 75 years, it is Rs 7.5 lakh, and for those over 75 years, the maximum loan amount is limited to Rs 5 lakh

• IOB also offers this loan based on its internal categorisation of borrowers and their age. The bank classifies pensioners into three categories: A, B, and C, where A and B belong to pensioners, and C is for family pensioners. The maximum borrowing limit for pensioners is Rs 10 lakh, and for family pensioners, it is Rs 6 lakh 

Interest Rate:

The interest rate differs from one bank to another. However, these are typically between 10 to 13 per cent.

• For example, IOB’s interest rate ranges from 10.50 to 11.25 per cent (Repo Linked Lending Rate - RLLR linked). Bank of Baroda’s interest rate lies between 11.90 and 12.40 per cent, and UCO Bank charges 12.85 per cent

Loan Tenure:

Typically, banks offer this loan for a maximum five-year (60-month) repayment period starting from the next month of availing the loan. However, the repayment period could differ from one to the other bank, and could be a tad more or less.

• For instance, SBI offers pension loans for a maximum of 72 months with a maximum age of 78 years for repayment. Indian Overseas Bank offers it for a maximum of 60 months to applicants below 70 years of age and for a maximum of 36 months aged 70 years and above. Bank of India and UCO Bank offers it for a maximum of 60 months and 48 months, respectively.

Processing Fee:

It varies in different banks and can range from Nil to up to Rs 1,000.

How Useful Are These Loans?

The loan is offered online and offline and has a straightforward application process with the least documentation required. The repayment amount is deducted directly from the pension. One of the other benefits is that a high credit score is not required, as the loan is backed by a pension. 

As banks do not define an end-use for this loan, one can use it for various purposes like medical emergencies, education, marriage, travel, and so on.

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