Ask Paul: We need to borrow money for renos but we're pensioners


Dear Paul,

We need to fix our house. It needs a new kitchen and bathroom - nothing too fancy. 

As we are only on seniors' pensions, would getting a loan from bank instead of private lender be better? Have you any suggestions on which to choose from? - Marie

ask paul clitheroe renovations pension borrow money

Interesting question Marie and I know many people on an aged pension will be reading this with interest. And speaking of interest, that is what my answer is all about.

You need the cheapest interest rate you can get from a reputable lender. Let me guess at the cost of a basic kitchen and bathroom, I'm thinking $10,000 to a maximum of $20,000. With your senior's pensions, a bank or similar may well be willing to lend this to you using your house as security. The interest rate will differ a lot between lenders, make sure you shop around.

Another interesting option is to go with the Department of Social Services Pension Loan Scheme.

This does not provide lump sums, but will lend you 150% of your pension on each pension payment date. It would not take many payment dates to access the amount you need for your kitchen and bathroom.

The plus here is the government charges you 4.5% on the amount they loan to you. No fees and charges apply apart from a valuation and the cost of placing a caveat over your property.

You can continue to take a fortnightly amount to improve your lifestyle and repay it after you leave your property and it is sold. Or you can pay it back at any time.

So, I'd be doing a bit of research. The government option is clearly outlined on the internet and being a government offer, there are no hidden fees or charges. You know this is available at 4.5%. How does this compare against a private sector lender? Make sure you clearly understand any fees they will charge you the repayment amounts and rate of interest.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
erica horton
March 12, 2021 12.29am

I want to no how come age pensioners can recived loans from centerlink but ppl like me on disability support pension cant I don't think that is fair