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eMoneyUnion Offering Loans to be Repaid with Pensions
New pension rules coming into effect in April 2015 will already allow retirees to spend their life savings in one go, once they reach the minimum age specified in their pension policies, which is usually 55-65.
Now, one peer-to-peer lending company is giving even earlier access for those individuals who just can't wait that long: by letting you borrow against your pension.
How the first offset pension loan will work
The borrower is borrowing £18,000 over five years. However, the plan is for the pension to pay the eMoneyUnion loan back in February 2016, when the borrower gets access to his large, £365,000 pot.
eMoneyUnion is not allowed to take the pension as security. However, it acknowledges that the borrower will be able to repay once the pension becomes available to cash in.
Lenders will receive 12% interest on this loan.
The law has not been tested on whether a borrower can be forced to cash in his pension to pay off a loan.
However, a pot of that size, combined with even a minimal state pension, could well produce a large enough monthly pension income that the borrower is able to repay the loan on a monthly basis from early 2016.
What reason can there be for allowing this?
The money is not being spent on a world cruise, however. The idea is to “ease” the borrower into retirement.
The borrower has been advised to take this course of action by his financial advisor, because his income is low and he has expensive outstanding loans that are being replaced at a lower rate. Mainstream lenders won't consolidate his debts because of his tarnished credit history.
eMoneyUnion is calling these kinds of loans offset pension loans. Since this is a whole new type of loan, the peer-to-peer lending website has created a new loan rating for it: P1. These loans will be covered by eMoneyUnion's bad-debt provision fund.
Read more: eMoneyUnion Really Does Do P2P Homeowner Loans.
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