Article

Pension Loan
November 27 , 2012

Pension loan is a loan product offered by banks to pensioners. State and Central government pensioners and family pensioners can avail pension loan.

Eligibility for pension loan

Since personal loans are risky assets for banks, most of them extend loan only to pensioners who draw pension from one of their branches. Apart from government pensioners some banks provide pension loans to pensioners of reputed companies, educational institutes and retirees except those that were dismissed or compulsorily retired.

The age of the applicant should not be more than 65-72 years.  

Purpose of pension loan

Most banks that provide pension loans offer them as personal loans for purposes such as meeting medical expenses, education expenses, repair/renovation expenses on house, home loan repayment and consumer durables purchase. 

Some banks like United Bank of India offer a customized housing loan for pensioners. Subject to eligibility conditions, senior citizens or pensioners can take this loan even for securing shelter in an old-age home.

Maximum amount of pension loan

Many banks lends up to 12 months' pension amount subject to a cap. For family pensioners the maximum loan quantum is lower; sometimes 9 times the monthly pension. Banks such as SBI and United Bank of India lends up to Rs 2 lakhs while other like Bank of India cap it at Rs 1 lakh.

Banks may also lay down other conditions such as EMIs are not to exceed a certain percentage of net pension drawn. Certain banks place margin of 5% on loan amount.

Interest and charges on pension loan

Typically 3.5% to 4.75% above base rate is charged on pension loans. Processing charges range from 1-2%. Some banks do not charge processing fee or exempt senior citizens from it.  

Repayment of pension loan

For pensioners below 70 years of age repayment period ranges from 36 months to 48 months. Repayment period shrinks for those over 70 years.

Although personal loans are unsecured loans certain banks such as SBI require collateral security in the form of third party guarantee. Others like Bank of India offer both secured loans and unsecured loans to pensioners. While interest charged on secured loan is lower, the asset purchased with the loan is required to be pledged as collateral.

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