When it comes to personal loan, age is not just a number

Emergencies can come in all shapes and forms and at odd times. Pradeep Viswas, a 53-year-old shopkeeper, realised this the hard way when his wife was diagnosed with a heart complication earlier this year. Since he had not bought health insurance, Mr. Viswas was left scrambling for money for her treatment. He decided to take a personal loan, but then he realised that his age was a stumbling block in getting credit. 

If you are past 50 and plan to take a personal loan, keep in mind ...

While you may have heard the saying ‘age is just a number’ multiple times, it does not hold in the context of personal loans. Age significantly influences personal loan eligibility, impacting interest rates, loan amounts, and tenure. Understanding these effects is crucial for making informed decisions when applying for credit.

First, the impact of age on personal loan interest rates is indirect – lenders typically offer lower rates to salaried applicants aged between 30 and 50. 

Second, individuals over 50 may have to pay higher interest rates as lenders know their working years are limited. To avoid defaults, creditors aim for repayment before retirement, influencing the loan terms offered to older applicants and this may significantly affect your personal loan experience.

Loan volume and tenure 

Third, banks typically give bigger loans to younger individuals, primarily because they 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. Those aged 50 and above face challenges in obtaining larger loan amounts due to their proximity to retirement. Lenders are careful about loans with higher EMIs that may strain post-retirement finances.

So, before applying for a personal loan, find out your loan eligibility with the help of a personal loan calculator and avoid unpleasant moments at the lender's office.

Loan tenure is another important aspect influenced by your age as lenders generally prefer borrowers to repay their loans before they retire. 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, minimizing financial risks associated with reduced post-retirement income, Mr. Pradeep found this to be a major hurdle given his limited monthly income.

Associated risks

If you are planning to take a loan after 50, you should enter the process with a clear idea of what the lenders look for. Your bank will assess your eligibility based on the following factors.

Income:  The first aspect your bank will consider while processing your loan is your income. You will have to show 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 the loan, including age-related health issues. 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.

                                                            (By arrangement with livemint.com)

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