What is pension and how does this work?
By definition, pension is a retirement scheme often given to government or civil workers. This is one of the most efficient ways to prepare and secure yourself financially for your retirement because this plan gives you benefits. When a person retires from service, one will get a sum which depends on the length of service of the retiree and the salary one receives at the time of his service. However, there are these inevitable circumstances that urge people to use all their savings to the extent of resorting to other alternatives such as loans to supply their immediate needs especially during emergencies. One of the loans that one could apply is what we call the pension loan from Productive Pensions.
Well, basically, pension loans work by taking the money from the retirement assets and pay the said amount in time with interest. Before we could think about borrowing from your retirement plan, you should ask yourself, “Is it a good idea?” Below are the simple guidelines to follow to give light to your thinking:
- You need to identify the purpose of the loan
As an initial step, you should take into consideration the reason why you should apply for a loan and the total cost that you need. Ask yourself, why do I need a loan? How much will I loan? How long will it take for me to pay it? Do I really have to do this? Of course, if your answer to the first question is “To buy a new car” then, remember a want is different from a need.
- Know the type of your pension plan
Although there are so many sources and institutions who will willingly grant the loan you are requesting, it is also important for you to read your own pension plan for there are some type of plans which do not allow using the retirement funds as a collateral to the loan. Others applied restrictions to it for security reasons, some plans allow to make it a collateral when your fund qualify to apply for a loan. So, to determine whether you are restricted to use your retirement plan to loan, read and understand the information of your pension plan.
- Consult with a financial planner
As it is said, getting a loan is not easy but if the situations tells you to do so, then you should always consult an expert. This financial planner will help you get the best options to where you have to obtain the loan where you can get low interest rates. This expert would also advise you with the maximum loan amount you should get and acquaint you further of the terms and conditions of the loan you are applying for.
- Understand the effects of borrowing from your pension plan
Pension loan is technically borrowing money from your own funds and paying interests of your own money. Thus, you should try to understand the rules and regulations before applying for a loan.