The need for some extra funds can come up any time.  Even though an individual has done enough of planning to cater to most difficult situations in life, there can still be some emergencies that crop up all of a sudden. This can happen with the young and old alike. While the young have their salaries or incomes to support them for credit, what about the elderly and retired?

The aged and retired population may have needs for credit, but a lack of income may make it tougher for them to avail loans. Banks or Financial Institutions may not lend to them as they might pose a higher risk. However, among the aged , there are a few who have worked during their youth with the Government and hence, have the opportunity to earn an income even after retirement in the form of Pension.

Pensions are guaranteed by the Government (either Central or State), and hence is a regular and a fixed source of income against which certain banks do grant a loan.

However, it should be understood that though pension forms a regular source of income, it may not match up with a salary. In addition, the age factor of the individuals drawing pension also comes in as a drawback. Hence, there are some restrictions on the loans granted against a pension.

What Are The Important Features Of A Loan Against Pension?

  • Pensioners can only avail personal loans against their pensions. There is no provision of other secured loans like home loans, etc. Personal loans do not have an end use criteria and hence, can be used for any purpose as desired by the pensioner.

  • Quite often, loans can only be availed at banks through which the pension is drawn. If not, other banks may demand Post Dated Cheques for the Loan EMI

  • The amount sanctioned against pensions is fixed and also depends on the age of the applicant. If the applicant has the option of drawing a family pension and if the spouse is alive, the amount and the age criteria is a bit relaxed. 

  • The spouse may also be required to stand as a guarantor for the loan availed by the pensioner. 

  • These loans are also allowed for the Family Pensioners (Spouse of a Pensioner) at reduced amounts.

  • Certain banks also restrict the loan amount so that the EMI payable does not exceed 40-50% of the Net Monthly Pension.

  • The interest rates are based on MCLR.

  • Processing Fees are sometimes reduced or totally waived off for certain category of pensioners. 

  • Repayment of the loan will be through direct debit to the Pension Account.

Additional Reading: 5 Personal Loans for Pensioners

We have put together a list of some of the best banks to approach for a Loan against Pension. They are:

State Bank of India

Eligibility Criteria

 

   Central and State Govt Pensioners  Defence Pensioners
 Disbursement of Pension  An irrevocable undertaking to be submitted to State Treasury for disbursement of pension through SBI during the loan.  Loans available only for pensioners whose Pension Payment Order is with SBI
 Quantum of Loan
  • <= 72 years Rs 14.00 lakh
  • > 72 but = 74 years Rs 12.00 lakh
  • > 74 but = 76 years Rs 7.50 lakh
  •  > 56 but= 72 yrs Rs 14.00 lakh
  •  > 72 but = 74 years Rs 12.00 lakh
  •  > 74 but = 76 years Rs 7.50 lakh
 Tenure Allowed
  • Up to 72 years of Age- 60 months with age at time of full repayment not exceeding 77 years
  • Between 72-74 years- 48 months with age at time of full repayment not exceeding 78 years
  • Between 74 -76 years- 24 months with age at time of full repayment not exceeding 78 years
  • Up to 56 years- 84 months with age at time of full repayment not  exceeding 63 years
  • Between 56 -72 years- 60 months with age at time of full repayment not exceeding 77 years
  • Between 72- 74 years- 48 months with age at time of full repayment not exceeding 78 years
  • Between 74- 76 years- 24 months with age at time of full repayment, not exceeding78 years

 

Rate of Interest: The current interest rate ranges between  11.95%-12.45% depending on the Benchmark rate (MLCR) of the bank.

Processing Fee: Processing fee of 0.5% of the loan amount + GST is charged except for defence pensioners

Punjab National Bank

Eligibility Criteria

  Up to age of 70  Between 70-75  Above 75 years
 Quantum of loan allowed  Rs. 10,00,000/- (Rupees Ten lakh only) OR 18 times of net monthly Pension (For Defence pensioners, 20 times net monthly pension), whichever is lower.  Rs 7.50 lakh OR 18 times their net monthly Pension (20 times in case of Defence Pensioners), whichever is lower  Rs. 5.00 lakh OR 12 months of pension amount, whichever is lower.
Tenure of loan  Maximum of 60 EMIs  Maximum of 60 EMIs  Maximum of 24 EMIs

 

Rate of Interest: A spread of 2.5% is charged over the Base Rate

Processing Fee: Documentation charges of Rs 500 + GST is charged

Bank of Baroda

Eligibility Criteria

 

   Upto 70 years 

 Above 70 years 
 Regular Pensioner   Rs 8 lakhs  Rs 3 lakhs
 FamilyPensioner  Rs 3 lakhs

 Rs 1.5 lakhs

 

Rate of Interest: 1 year MLCR + a spread of 2.5%

Processing Fee: While there is no processing fees for senior citizens who are 60 years old and above, others are charged  2% of the loan amount.

End Note

A pension is granted as a financial source to help the aged through the retired years. Do make sure that the loan being drawn has a genuine need and that you can comfortably meet your expenses after paying off the EMI.