Loans work as financial support for people who are unable to fulfil their financial goals with their own funds. With the continuous rise in inflation, it is becoming more and more difficult for people to meet their lifestyle expenses, buy cars, live in luxury homes, and pay high hospitalization bills, among others. By taking a loan, people can easily overcome financial shortfalls and match their changing spending needs.
Banks have also designed various loan products to address the financial needs of their customers. For example, nowadays banks offer products such as wedding loans to meet marriage expenses, holiday loans for people who need money for meeting holiday expenses, personal loans for general expenses, and several other loan products which are customized as per customers’ specific needs. Borrowers need to fulfil the bank’s eligibility norms to get such loans.
Let’s check out how age can impact your borrowing capacity.
Longer loan tenure can help with income inadequacy
If you are young and looking for a loan, but your income is inadequate to repay the EMIs within the intended loan tenure, the loan can still get approved by increasing its tenure. A longer repayment period reduces the EMI. So, it increases the chance of getting the loan when you are young and have more time to repay the loan. However, when you get closer to retirement, it restricts your flexibility to stretch the repayment tenure. So, you can’t get a loan approved if your income is inadequate.
Banks usually allow a loan up to 60 times (other factors also considered) of the net monthly income of the borrower. It means your net take-home salary should be approximately Rs 83,000 to get a loan of Rs 50 lakh. At the age of 30 years, you may get 30 years to repay the loan (considering the retirement age to be 60 years). So, you can easily repay an EMI of Rs 38,446 and be left with adequate money in hand to meet other financial responsibilities. If you take the loan at the age of 40, your EMI obligation will increase to Rs 43,391. So, you may find yourself financially squeezed as you’ll be left with Rs 39,600 after repaying EMI to meet your other financial responsibilities.
At the age of 50, if you take the loan, your EMI obligation will increase to approximately Rs 62,000 and you’ll be left with only Rs 21,000 in hand. If the borrower’s age is closer to retirement, the bank may ask her for extra financial cushioning such as bringing in a co-borrower, increasing the loan margin, lowering the loan amount, etc., to ensure the timely recovery of the loan.
“Age, income, repayment capacity, and credit score are some of the most important factors influencing your loan eligibility. But, the quantum and tenure of your loan are directly linked to your age. A 25-year-old applicant is more likely to be approved for a larger loan quantum for a longer tenure, compared to a 50-year-old applicant,” says Adhil Shetty, CEO, BankBazaar.com.
Limited options for retirees
After you retire, banks may not allow you all the loan products which they offer to non-retirees. Post-retirement, you can still get a loan against your pension income, a secured loan such as a gold loan, a loan against FDs, etc. Getting a personal loan can be difficult when you grow older because the lender requires a sufficient regular income along with a stable job record to ensure timely repayment. So, unsecured loan options shrink as you get closer to retirement.
As you get older, your eligibility to get a new loan goes down. However, you can still get a loan by introducing a co-borrower, increasing the down payment or choosing a secured loan such as a gold loan or loan against property. But go for a loan only when it’s highly essential and is strictly in sync with your financial goals.