How to navigate personal loans after 50? Here are 3 key considerations for borrowers

Emergencies can come in all shapes and forms, and they tend to present themselves at times when you are least expecting them. Mr. Pradeep, a 53-year-old shopkeeper, realised this the hard way when his wife was diagnosed with a heart complication earlier this year and since he had not bought a health insurance policy earlier, he was suddenly left scrambling for funds to pay for her treatment and surgery.

With his children still in the early phases of their career, and his relatives unable to offer aid, Mr. Pradeep decided to take on a personal loan to fund his wife’s treatment and that is when he came to know that his age was affecting his eligibility for the same. If you are in your 50s, and wish to avail a personal loan, there are some key considerations you must keep in mind to avoid an unpleasant and expensive exercise.

Age is not just a number

While you may have heard the saying ‘age is just a number’ multiple times, it does not hold true in the context of personal loans. In fact, age significantly influences personal loan eligibility, impacting factors such as interest rates, loan amounts, and tenure and understanding these effects is crucial for making informed decisions when applying for credit. Firstly, the impact of age on personal loan interest rates is indirect – lenders typically offer lower rates to salaried applicants aged between 30 and 50 due to their stable income and professional experience.

Accordingly, individuals aged over 50 may encounter higher interest rates as lenders consider their limited remaining working years. In order to avoid defaults, creditors aim for repayment before retirement, influencing the loan terms offered to older applicants and this may affect your personal loan experience significantly.

Impact on amount and tenure

Lenders typically approve higher loan amounts for younger individuals compared to older ones, primarily because younger borrowers have more years of earning potential ahead of them – this allows them to choose longer repayment periods, spreading out their equated monthly instalments more comfortably. However, individuals aged 50 and above face challenges in obtaining larger loan amounts due to their proximity to retirement. Lenders are cautious about approving loans with higher EMIs that may strain post-retirement finances.

Accordingly, it is advisable to use a personal loan calculator before applying for a loan to determine your eligibility and receive prompt credit approval from lenders. Loan tenure is another important aspect influenced by your age as lenders generally prefer borrowers to repay their loans before they retire to ensure a steady income source for timely EMI payments.

Younger borrowers are often offered longer loan durations, facilitating easier repayment schedules aligned with their longer working lives. In contrast, older borrowers nearing retirement may find lenders offering shorter loan tenures. While this strategy ensures that loans are paid off before retirement, minimising financial risks associated with reduced post-retirement income, Mr. Pradeep found this to be a major hurdle given his limited monthly income.

The procedure at play

Personal loans are meant to empower individuals to live their lives to the fullest extent possible and if you do need to take a loan after the age of 50, then you should enter the process with a clear idea of the aspects under consideration. Your bank will take into account the following factors while assessing your eligibility and finalising the loan terms.

Income – Whether you are a pensioner or still employed, the first aspect your bank will consider, while processing your personal loan, is your income. In order to obtain a personal loan, you will be required to showcase a regular flow of income and this can be anything from a pension to your salary or your savings.

Associated risks – Next, your bank will consider the risks associated with sanctioning your loan, including the age-related health issues you may suffer from, given that you are no longer in your prime. This is because the lender wishes to avoid defaults and is focused on recovering the loan amount at the end of the tenure. The fitter you are, the better your chances will be, of attracting milder terms on the personal loan.

Other expenses – While your income may be limited, as you age, your expenses tend to increase, especially in terms of medical bills. Your bank may access your monthly expenses, and consider regular medical charges, before disbursing your personal loan, to deduce your ability to pay off the loan amount.

If you are above 50 and find yourself in need of a personal loan, the way forward may be tough to navigate, as Mr. Pradeep realised the hard way. However, paying heed to the aspects at play, and maintaining a healthy constitution, can go a long way towards easing the process.

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.