Anyone can face a financial emergency or may need funds to tide over a crisis. There are many ways to arrange funds. You can seek short term assistance from a friend or family. There is an option of gold loan or a property loan. If you are young, you can apply for a personal loan. However, what if you are retired and living on a pension? You may feel that a personal loan is out of bounds for such people. This is not entirely true. In this post, we will discuss a personal loan product that has specifically been structured for pensioners. We will talk about SBI Pension Loan. The loan is available to state and central Government pensioners, Defence pensioners and even family pensioners (spouse authorized to receive pension after death of the pensioner).
SBI Pension Loan: Eligibility
- You must be a Central Government or a State Government or a Defence pensioner (or a family pensioner). Defence pensioner include Army, Navy, Air Force, Paramilitary forces (CRPF, BSF, CISF, ITBP etc), Coast Guards, Rashtriya Rifles and Assam Rifles.
- As I understand, if you are drawing pension from private firm, you won’t be eligible for this loan product.
- You must not be more than 76 years of age. This restriction applies to family pensioner too.
- For defence pensioners, it is specifically mentioned that there is no minimum age. There is no particular mention of minimum age for other pensioners.
- You must be drawing pension through one of SBI branches.
- You have to give an irrevocable undertaking that you will not change your bank branch for receipt of pension. And treasury (that pays the pension) must acknowledge your request. This is to ensure that you route your pension through SBI.
SBI Pension Loan: Salient Features
- Nil processing fee for Defence pensioners.
- EMIs will be recovered from your pension account.
- Prepayment penalty of 3% on the prepaid amount.
- If the pension loan is prepaid from the proceeds of a new loan under the same scheme (SBI Pension Loan), then no prepayment penalty shall be charged. This feature can be useful if the interest rate has moved down from the time when you took the first loan.
- There is no need to purchase any loan insurance.
You can get more details about the product on SBI website.
How Much Loan Can You Get under SBI Pension Loan? What Is the Loan Tenure?
The minimum loan amount is Rs 25,000. The maximum loan amount and loan tenure depends on pensioner’s age and the type of pension he/she is drawing.
Additionally, EMI/NMP ratio should not exceed 50% for Central Government, State Government and Defence pensioners. NMP stands from net monthly pension. This ratio for the family pensioners shall be capped at 33%. If you are a Central Government pensioner and your net monthly pension is Rs 30,000, your loan amount cannot exceed Rs 5.4 lacs (18 x Rs 30,000). In addition, your loan EMI cannot exceed Rs 15,000 per month. The EMI for Rs 5.4 lacs for a 60 month loan at 10% p.a. shall be Rs 11,473. To get the maximum loan amount of Rs 14 lacs (assuming the rate of interest is 10% p.a.), your net monthly pension should be Rs 59,500.
Do I Need to Provide Any Security to Get SBI Pension Loan? There is no need to provide any tangible security. However, if the spouse of the pensioner is eligible for family pension, then spouse needs to provide guarantee (third party guarantee). In the absence of spouse, third party guarantee from any other family member or a third party will serve the purpose.
What are the interest rates for the SBI Pension Loan scheme? Interest rates will keep changing. You can check the latest interest rate here. As on 10-April-2018, the rate is: 2 year MCLR + 3.35%.
Should You Opt for SBI Pension Loan?
The question should be “Do you have a choice?” If you need funds and can’t arrange from anywhere else, this is a good option. You wouldn’t get funds at this rate from informal market. Clearly, the loan repayment will put stress on your monthly cash flows. At that age, there may not be too many options to increase income. Inflation is already a problem for most pensioners. Therefore, it is important that you plan well before you retire. Before retiring, ensure that you don’t just have pension as your only source of income. Plan a contingency fund. Do not just invest in income-creating assets. Invest in growth assets too. If there is no other option, you can go for this loan.