Borrowing money doesn't necessarily stop once you hit retirement age. Even if you're collecting Social Security benefits and have other sources of income, you could face a major expense that exceeds your available funds. If that's the case, you may want to look into taking out a personal loan. Here is what you need to know.
Key Takeaways
- You can take out a personal loan while receiving Social Security benefits.
- The loan proceeds will not affect Social Security retirement benefits.
- However, if you're receiving Supplemental Security Income (SSI) from Social Security, any loan proceeds you don't spend could count against you and reduce your benefits.
- If you don't qualify for a personal loan, you have other borrowing options to choose from, including using a credit card or tapping into your home's equity.
How Social Security Benefits Work
Social Security benefits are administered by the U.S. Social Security Administration. They come in several different forms, each with their own qualification requirements. They include:
- Retirement benefits
- Survivors benefits
- Supplemental Security Income (SSI)
- Social Security Disability Insurance (SSDI)
How to Get a Personal Loan on Social Security
When you apply for a personal loan, prospective lenders will want to make sure that you'll be able to repay them when the time comes. The sources of your income aren't necessarily an issue, so long as you can prove you'll have enough money coming in to keep up with the payments on your loan.
In filling out a personal loan application, you'll want to include all of your income sources, whether that's through a job where you get a regular paycheck, alimony, child support, investment dividends, retirement income from Social Security or a pension, or anything else. How much you bring in each month can not only affect whether you can get a loan but also how much money the financial institution will be willing to lend you.
Getting a personal loan won't impact your Social Security retirement benefits. However, if you're receiving SSI, it may affect that. That's because SSI has resource limits, and if you don't spend the funds you borrow in a given month, that amount will count toward your resource limit for the following month. In that situation, it makes sense to borrow only as much as you plan on using right away.
The current resource limits for SSI recipients are $2,000 for individuals and $3,000 for couples, with certain assets, such as a home and one vehicle, being exempt.
Alternatives to Personal Loans
If you can't qualify for a personal loan, or simply don't want one, there are other options for borrowing money. These include:
Credit Cards or Credit Card Cash Advances
If you can cover your expenses with a credit card you already possess, you won't have to complete a loan application or add a new bill to your budget. Using a credit card could make sense if can pay off your balance the next month or within a few months.If you run a balance for an extended period, however, it can get expensive.
If you need cash, you could also consider a credit card cash advance. Cash advances carry a different—and typically higher—annual percentage rate (APR) from normal purchases and usually involve some extra fees. So they can be a very expensive way to borrow.
Home equity loans or home equity lines of credit (HELOCs)
If you own your home, you can borrow against the equity you have in it through a home equity loan or home equity line of credit (HELOC). With the former, you typically receive a lump sum of money that you then pay back in regular installments. With the latter, the lender provides you with a line of credit you can borrow from as needed.
Interest rates tend to be lower with home equity products compared to personal loans. However, both home equity loans and HELOCs use your home as collateral, so if you can't pay the money back, you risk losing it.
Friends and Family Loans
If you're comfortable doing so, you can also ask close friends and family members if they can lend you the money you need. But make sure you work out a payment plan and stick to it to avoid any ill feelings. You may also want to put everything in writing, just in case.
Can You Get a Personal Loan on Social Security?
You can take out a personal loan while you're receiving Social Security benefits if a lender is willing to give you one. Lenders will want to know that you have enough income to repay the loan, and Social Security benefits count toward that.
What Disqualifies You From Getting a Personal Loan?
Every lender has its own requirements for granting personal loans. You could be disqualified for any number of reasons, including an inadequate credit score or poor credit history, asking to borrow too little (or too much), or having insufficient income.
What Is the Easiest Loan to Be Approved For?
Some financial institutions have stricter lending standards than others, including minimum credit score requirements in some cases. If you can get pre-qualified for a loan at a particular lender—which doesn't require a credit check and won't hurt your credit score—you'll know how likely you are to be approved. While pre-qualification doesn't guarantee that you'll get a loan, it helps smooth out the process if you know you're eligible before completing a full application.
The Bottom Line
Social Security benefits are one source of income that can help you qualify for a personal loan if you need one. The proceeds from such a loan won't affect your retirement benefits, but they can have an impact on your benefits if you're receiving SSI.
