Pension Loans and other ways of getting cash from your pension are hot news at the moment, but what are the benefits?
We all know that the financial situation can be tough at the moment, with companies, individuals, and perhaps even countries, going bust every week. The Euro-Crisis is in the news virtually every day, and many people are predicting another forthcoming Credit Crunch in the near future.
All those factors mean that banks, building societies and other conventional lending institutions are becoming more and more cautious about lending money – either to businesses or individuals. And with house prices at best stagnant and in many places falling, normal secured loans against a property are also becoming harder to obtain. That has led many people to look at another of their major “assets” – their pension fund – as a way of raising money, or as security for a loan. But, please note, pension loans are often, rightly, considered as “a loan of last resort”. While it may be tempting to look at your pension fund as a way to raise cash now, remember why you created your pension in the first place… to give you cash in the future, when you retire.
So, while pension loans might seem like a readily available source for the money you need in your current financial situation, please consider the long-term implications. If something unforeseen happens, meaning you cannot pay back your pension loan for some reason, how will that affect your income when you retire? When talking to a pension loan scheme provider, make sure you ask what happens if you are unable to repay your loan for some reason. And then factor that “worst case scenario” into your decision-making process. This website does not offer financial advice, and neither do pension loans scheme providers. If you are at all unsure, you should speak to an IFA – an Independent Financial Adviser – to see how your decisions may affect your future pension wealth, before you get a loan against your pension.
No Credit-Check – “Bad Credit Loans”
You will usually find that pension loans do not require any credit check, unlike many other forms of loan. So they can be a kind of “bad credit loan” for people with poor credit histories, or people who have been turned down by other lenders. This can be very attractive if you do not want a credit check to appear on your credit history, or if you know that you are likely not to be accepted by more mainstream loan providers.
But again, bear in mind that the reason that pension loans do not have credit checks is because you are effectively using your pension fund as security for the loan. Just as your house may be at risk if you get into arrears on your mortgage repayments, your future pension income may be at risk if you use it as collateral, or withdraw cash from a pension early.
Fast Decisions on Pension Loans
Most pension loans scheme providers will be able to give you a quick decision on whether to accept your loan application. Unlike other loan providers, they do not have to check your credit history, they just need to confirm the amount in your current pension fund (or a combination of several pension funds).
So you will normally get a quick decision on your pension loan application, but as we mentioned above, don’t let this rush you into a quick decision. Ask lots of questions about how the pension loans scheme works, whether it involves a transfer of your pension to a different pension provider (many pension loans schemes transfer your pension to a SIPP, for example, as part of their process), and what happens in the worst case scenario, if you are unable to repay the loan for some reason. Read the small print and terms and conditions of the loan carefully, and consult a qualified financial adviser if you are at all unsure.
Also check how long it will take to process your pension loan. Some companies can process your pension loan in a couple of weeks, but if their process involves transferring your pension fund from your current pension company to a new provider, this can take time – sometimes as long as three months.
Pension Loans Against Small or Large Pensions
“How much cash can I get from my pension?” is the first question most people ask when considering a loan against pension. The simple answer is, “It depends!” In general pension loans schemes allow you to borrow 15% to 40% of the value of your current pension fund (or funds). The amount will usually depend on how much cash is in your pension. Usually the lower limit is a minimum of £15,000 in a current UK pension fund.
We know of one “pension release” company that will let you release up to 90% of the current value of your pension, but their lower limit is £50,000. If you are interested in this option, and you have a pension fund of £50,000 or more, use the form at the top of this page and we will put you in touch with the relevant company.
Is a Pension Loan Right for You?
That is a question only you can answer! We do not offer financial advice, we are just trying to make you aware of some of the options available, and the potential problems if things do not go as you hoped. If you are in any doubt, we highly recommend that you talk to a qualified financial adviser before proceeding. And if you are having problems with debt it is always worth talking to a free debt advice service, such as your local Citizens Advice Bureau.
New pension loans schemes are launching regularly, some of them with innovative new ways of releasing cash from pensions. At the same time, the government is keeping a strict eye on the industry to weed out some of the “shady” schemes.
So it is impossible for us to cover all the options and methods for pension loans in one article. And the options available to you will vary depending on your individual circumstances.
So if you would like to find out more, and discover what is available for you, please use the form at the top of this page to request a phone call. There is no obligation, no credit checks, and it costs nothing to find out what your options are!