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

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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