Loans aren’t just for young people with big ideas. For one thing, most seniors we know have bigger dreams than people in their 30s!

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Borrowing money is a normal part of life and our planning for the future, but how do you know which approach to take? How many approaches even are there?

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We’ve aimed to answer those questions (and more) in this article, so that, by the time you reach the bottom of the page, you feel a renewed sense of confidence when it comes to borrowing money.

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Why seniors in Canada might need loans in 2024

It doesn’t matter if you’re 30 or 70, there are plenty of reasons you might need to borrow money. Some of them are the same for all ages and a few scenarios are more specific to those of us in retirement. We cover all of the most common reasons below.

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Rising healthcare costs

Health issues can affect any of us at any time, but it’s also true that they’re more likely as we get older.

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It doesn’t have to be a long stay in hospital, a few consultations and new daily medications can put pressure on your finances. If you’re living on a tight retirement budget, ongoing medical costs can cause big problems.

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Managing day-to-day living expenses

It’s easy to end up with a gap in your budget, whether because of unexpected expenses or rising costs. If you’re in need of some everyday spending cash, a loan can be a good solution.

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A loan like this might not be that big, but it can be vital to keep you afloat.

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Home renovations and modifications

Home improvements can often be too expensive to pay for in cash, so homeowners turn to loans.

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If your mobility or access needs change, your home might have to be modified to maintain your quality of life – adding things like stairlifts, wider doors or ramps and rails.

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Debt consolidation

If you’ve got lots of debts, it might be smart to take out a new loan that pays off all the others. You can then focus on repaying a single consolidated debt.

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Managing debts can eat up time and energy; juggling due dates, payments and rates. Consolidation can make life a lot simpler. If the average interest rate of your debts is higher than your new loan, you could end up saving overall.

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Supplementing retirement savings

If you’ve reached retirement, that’s worth celebrating. Many folks struggle to fully retire, often working part-time or for longer than they want.

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You will have savings, but they might not quite give you the lifestyle you hoped for. In this case, a loan can work as a great top-up, giving you the retirement you dreamed of.

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The eight loan options available for seniors in Canada

If you are considering a loan, there are plenty of avenues you can go down. We’ve outlined the most common and easily accessible, but it’s not a complete list of every option.

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Speak with a financial advisor for the fullest picture possible.

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Personal loans for seniors

Personal loans are available from most Canadian banks and credit unions. They’re for individuals who want to borrow money, without securing against an asset (e.g. your home).

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You can borrow a few thousand dollars up to $50,000+. Lenders will generally ask you why you want the loan, but there aren’t many restrictions on how you use your money once you get it – as long as you meet your repayment schedule.

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As of June 2024, Canadians owe $14.058 billion in personal loans (excluding loans for vehicles), if you want to understand just how popular these loans are.

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Mortgage refinance

If you still have a mortgage on your property, you could use a refinance to pay off what’s left of your loan and keep the difference.

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Homeowners use refinancing to turn the increased value of their property into cash, as well as reducing their repayments with a loan at a lower interest rate.

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Reverse mortgages

A reverse mortgage, like the ones we offer, is a way of accessing your home equity without having to sell or remortgage your home.

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We can offer a reverse mortgage up to 55% of the value of your home equity, subject to certain restrictions, with the loan only due for repayment when you no longer own and occupy your home. You accumulate interest, but you don’t have to make monthly repayments.

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Home equity loans

You can also use your home equity to guarantee a loan. Home equity loans turn your tied-up wealth into cash you can use here and now.

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The risk with a home equity loan, however, is that you can lose your home to foreclosure if you fail to repay.

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Credit card options for seniors

Credit cards are one of the most widely used and available ways Canadians borrow money, but their limits aren’t typically as high as loans.

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Retirees and seniors can take out new credit cards, just like any other Canadian adult, but some providers might use different terms or have upper age limits.

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Interest rates on credit cards are higher than most loans. While there are positive uses for credit cards, you might want to consider loans before using a credit card for any big expenses.

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Government Support for seniors

There are a number of government schemes that can be useful for (or exclusive to) seniors – from loans and grants to tax credits and community programs.

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A snapshot of what’s available:

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• Canada Greener Homes Loan (interest-free loans for home energy efficiency projects).
• Guaranteed Income Supplement (monthly payments for over 65s with low incomes).
• Tax credits for Home Accessibility, Caregiving, and Disabilities.
• Provincial and territorial tax credit programmes – examples include the Northwest Territories’ Senior Home Heating Subsidy and Nova Scotia’s Home Adaptations for Seniors’ Independence.

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Lines of credit

You can draw from and repay a line of credit as you need over a period of time, unlike a loan that pays you a lump sum that you then start repaying.

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Credit cards fit into this category and some other popular lines of credit you’ll find are:

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• Overdraft – you might already have an overdraft arranged with your bank, but you could look at extending it. Bank overdrafts won’t offer as much as a personal loan or HELOC, for example.
• Home Equity Line of Credit (HELOC) – secured against your home equity, a HELOC is a revolving credit facility that tends to come with a better interest rate than other unsecured credit lines.

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Short-term loans

These loans give you fast access to cash, with relatively quick repayments (over months or a few years, not decades).

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Some banks and credit unions can provide short-term loans, but so do specialist companies. The rates on these loans are the highest you’ll find, due to the risky (and, unfortunately, urgent) nature of the lending.

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Short-term loans are rarely a first-choice, due to their high interest rates and repayments.

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Eligibility criteria for seniors applying for loans in Canada

A lot of seniors think their options are limited when it comes to finding loans, when the reality is much more positive. Overall, you can access most of the financial products in retirement that you could in your younger years.

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The main difference is that most lenders aren’t going to offer long terms to seniors. Shorter terms mean bigger monthly installments.

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In terms of common criteria, you can expect to encounter:

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• Income checks, including pensions and annuities.
• Credit score checks (to know you’re a reliable borrower).
• Proof of identity, address and citizenship.
• Loan conditions including clauses covering your passing.

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Most of these are standard practice for any loan.

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How to choose the right loan option

Before you make any commitments towards one loan over another, follow these steps to make sure it’s the best option for your situation.

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1) Assess your financial needs

The amount you need to borrow (and why you’re borrowing it) will dictate what type of loan you choose.

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• If you’re looking to improve your home’s insulation, you could use a government-backed interest-free loan.
• If you want to improve your yearly budget in retirement, you could release some of your home equity with a reverse mortgage.
• If you want to adapt your bathroom to suit a wheelchair user, you could use a combination of tax credits, government grants and a personal loan.

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Sit down and plan out:

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• How much you need and why
• What you can afford to repay
• Whether you expect your income to change at some point

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Then you’ll have a good starting point for the next step.

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2) Compare interest rates and loan terms

Looking at a range of loans, you can assess which lenders are offering the best deal. “Best” is subjective – it all depends on your situation, which you will have clarified in step one.

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Bear in mind, the lowest interest rate might not always be the cheapest loan overall. A lower rate on a long term could cost more in interest than a higher rate on a shorter term.

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3) Seek professional financial advice

Before making any big financial commitment, you should consider discussing your ideas with a qualified financial advisor.

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They can sense-check your plans, help you stress test your finances and advise you of any alternative options you might not have considered.

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Potential alternatives to traditional loans for seniors

Traditional loans are a great option, but they’re not the only ones. There are a couple of other ways you can borrow money in later life that are worth considering.

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Reverse mortgages

We did mention reverse mortgages earlier, but they aren’t a typical loan or credit facility.

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Reverse mortgages are unique because, while they pay you a lump sum, you don’t need to repay until you leave your house. You accumulate interest like a normal loan, but you don’t lose money to repayments while you remain in your home.

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You retain ownership (including any increases in value) and will only repay the loan when you move out. We offer loans of up to 55% of the home value, with a fixed rate, so you can borrow and spend with confidence.

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Bloom Card

We also mentioned credit cards earlier, but there is a related option we didn’t explain.

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Bloom’s Home Equity Prepaid Mastercard® is the first of its kind – combining a payment card and reverse mortgage.

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Just as with a reverse mortgage, you don’t make any repayments until you leave your home. It operates on a different model to a reverse mortgage, though. Bloom registers a mortgage against your home and adds your spending (with its interest) to the balance over time.

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It acts as an addition to your income, rather than just being a different way to manage your expenses.

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Common mistakes to avoid when taking out a loan as a senior

Borrowing money will always come with some risks, but some of the biggest mistakes can be avoided. It just takes some careful planning and preparation.

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Not reading the fine print

Loans come with a long list of terms and conditions. It’s never going to be a fun task, but you really should read them.

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For example, hidden penalties for early repayment or a late installment could make your loan a lot more expensive – or even unaffordable.

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Borrowing more than needed

More money can be tempting, but it comes at a price. Even a few thousand dollars more than you need can add up to a lot more in interest and monthly repayments.

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Even if overborrowing doesn’t make much difference to the loan itself, it can impact your day-to-day finances. Borrowing more than you need will raise your repayments. That’s costing you twice over – increasing your repayments reduces your budget each month.

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Failing to compare different loan options

It can be tempting to just borrow money from the bank you know and use already. Unless you’re lucky, that isn’t likely to be the best option.

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Comparing different loans and lenders will help you discern the real best choice – whether that’s a lower rate, longer term, or smallest overall repayment amount. Don’t let familiarity cost you.

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Ignoring the impact on credit score

Hopefully, you’ve spent your life building up a healthy credit score. Borrowing money impacts your credit score and any missed installments will have an even bigger effect.

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If you think you’ll need to borrow more money in the future, you’ll want to feel confident that your credit score can sustain a higher level of debt.

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You don’t have to settle for a lack of money

So many of the seniors we talk to have grand plans and big hopes for their future. Funding those hopes and dreams is where they get stuck.

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Provided you prepare and research properly, you could use a loan to make those “one day” ambitions a reality.

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There are plenty of options out there, so you can find one that works for you – whatever situation you’re in. The key is to do your research and crunch your numbers.

At Bloom, we believe one of the best options in many cases is a reverse mortgage. If you agree, then you can get an estimate by answering just four questions today.