Have you been tempted to take a pension advance loan? There are such things after all. Here’s how they work: You get a lump sum payment and pay the lender back over time, usually five or ten years. You get the money you need now, but at a price. No company is going to give you money as a favor and they need to be repaid, not unlike other lenders.
There are limits on the amount of interest that can be charged, but additional fees can quickly increase your monthly payments. In addition to processing fees, many loans require you to also purchase life insurance in the amount of the loan. The policy is payable to the lender. They take precautions to protect themselves. Who protects your interests?
You as a consumer have little protection in this transaction. With the added fees and the mandatory insurance, effective interest rates frequently top 30 % per year. There is also little oversight over these lenders. Many firms claim that pension advances are not loans, so state banking disclosure rules need not apply to their products. Some states are in the process of investigating firms for a variety of possible violations. Charges range from violation of usury laws (charging too high an interest rate), fraud and deceptive advertising.
You have a vision of what you want your retirement to look and feel like. During your working life, it was always possible to overcome a temporary cash flow problem. You could work more hours or make a big sale to get better commissions. You could take on a side job. Those options aren’t real for most retirees. Before you take a pension advance, ask yourself,” Will I be able to get by on what I get now minus the amount of the loan payment?”
Stephen Unsworth
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