Because of the rising economic crisis, many individuals are facing extreme difficulties, in terms of building a long term financial resources. When you think that the pension is your only asset, worry not, because many people also think that way. If you’re left with no other choice but to file for a loan, this is the perfect article for you. Read along and discover how pensions can be used as collateral loans.
Talk to the lender
Whether that’s a bank or a financial institution, consulting them should be your first step. Using your pension as collateral is still a new system for most banks thus; inquiring them for requirements and other consequences, is a must. Some may ask for a proof of vestment while other companies have their own set of requirements.
Keep in mind that keeping your pension secure is a must; thus, you have to make certain that you’re dealing with a legit financial company.
Clarify the date of initial disbursement
The next step would be to clarify the date of your first pension disbursement. Lenders who accept pension as collateral often have rules when it comes to disbursements. Most of them only accept pensions that are entitled to receive a disbursement not later than 60 months after the loan was issued.
You can talk to your pension provider if you’re unsure of your first payment or disbursement date.
Do your math
Then, you should compute the percentage of your pension balance that your bank or lender will require. Most banks and lenders won’t approve loans that are quite close to the pension plan balance. They would approve collateral loans that are half of the overall balance of the pension account only.
If you’re not comfortable with such consequences, you can always look for other banks that have a better offer.
Provide all the essential documents
Once everything is set, it’s time to provide all the essential papers and documents to the lender. Such documents often include the following:
- Proof that you’re fully vested
- Pension accounts balance confirmation
- Date of disbursement
Because this is still a new system, most banks and lending companies are still in the process of generating a final list of requirements.
The last and final step would be the completion of your loan application. This will necessitate you to dispense personal, and government provided information, such as Social Security number. Most of these information are somewhat connected to your assets, which will be the basis of the lender to determine if you’re a good risk.
Such information will also tell if the pension is enough to be used as collateral.
Despite the financial difficulties that most countries are experiencing today, you can still consider yourself lucky if you own a pension plan. Most people don’t consider applying for a loan because of the collateral issue. With a pension plan, the entire process of application for a loan will be easier. Although the risk is still there, most people opt for pension as collateral because of its flexibility.