The Home Category The Home: family money matters

How to use future pension funding as collateral for a personal loan

As some people approach their golden retirement years, they find themselves short on money in the near term, but promised a sizeable pension just a few years down the road.

This can cause unwanted stress and hardship as you try to "make it" to your retirement date. Some banks and lending institutions will offer personal loans to people who use their future pension payments as evidence that they will be able to pay back the loan once their pension payments begin.

Find a bank or lending institution that offers personal loans. Many banks and credit unions will offer personal loan products to their customers who have a checking or savings account with them. Check with the bank institutions you use to determine who is offering the most competitive interest rates.

Gather your pension documents. Because you will be using future pension payments as collateral, you will need to prove to the bank you have the ability to pay the money back based on those pension payments. Gather your most recent pension earnings statement. This statement should clearly show that you are vested, when you can retire and the monthly or yearly benefit you will be receiving.

Understand the timeline in which you can use pension as collateral. This will vary between banking institutions. Because most personal loans are relatively short (in comparison to say a home mortgage), you probably want to be within five years of retirement in order to secure this loan. Contact your lending institution to get its specific policy.

Apply for the personal loan. The application process will include basic information about you such as name, address and Social Security number. It also will ask for financial information, such as your income, expenses and the amount and term of the loan your are looking to secure. Be sure to turn over copies of your pension benefit statement to show it will be used as collateral for the loan. From this point, you will either be approved or denied for a loan based on your overall financial picture.


If you cannot get a personal loan with just your signature, try to obtain a partially secured loan. A partially secured loan is a type of loan where you, as the borrower, agrees to freeze a portion of the money, in return for getting a bigger loan. For instance, if you want £6,500 the bank, may ask you to freeze £975 in an account to cover any defaulted payments should they occur. Then when the balance is paid back, you will get your £975 back. Some banks or lending institutions may ask you if you have life insurance policy. This is another safeguard that they will be paid in the event of your untimely death. If you do not have life insurance, consider buying a term policy that covers the next few years until you receive the pension payments.

Things Needed

  • Vested pension