There are many reasons why veterans and currently serving military members might need to consider applying for a personal loan. The cost of permanent change of station moves is one–those moving from low-cost to high-cost areas may need more money up front for security deposits, storage fees, and other expenses.
In times when a personal loan is needed, some want to know how and where they can apply for a VA loan; after all, VA mortgage loans are offered from participating lenders who also provide personal loans, isn’t there a VA loan for someone who wants to consolidate debt, buy a vehicle, or invest in a college fund?
The short answer is no. VA loans are only for real estate. If it cannot be taxed or legally classified as real estate you cannot purchase it with a VA mortgage. That is why RVs, campers, houseboats, and other vehicles are ineligible for VA loans.
Without a VA personal loan option, what is available for those who need a military-friendly personal loan? There are a variety of choices starting with the servicemember’s own pay schedule, as we’ll explore below.
A Word About VA Debt Consolidation Loans
The paragraph above states clearly that VA loans are NOT available as personal loans. This is true. It is ALSO true that you cannot buy a home with a VA loan, apply for more money than you need to purchase and close the deal, and take the remainder in cash. This is not permitted.
But there IS a VA loan option that does provide cash back to the borrower; it’s just not a new purchase loan.
The VA Cash-Out Refinance loan program allows you to refinance a home you have made a minimum amount of payments on (ask your lender as VA loan minimums and lender standards may not always agree–the lender is free to require a higher number of payments). Any amount left after the original loan and closing costs have been paid goes back to the borrower in cash at closing time.
The VA Cash-Out Refinance loan can be used for a loan that is current or delinquent and can refinance both VA and non-VA mortgages alike. What’s the catch? The younger your home loan is, the fewer payments that were made means you won’t have as much equity built up over time. And that means less cash back at closing time.
For those who have longer payment histories, the cash you get back on the loan can be used for any purpose acceptable to the lender and that includes debt consolidation or other personal loan type uses.
Some financial institutions or credit repair blogs may refer to the VA Cash-Out Refinance loan program as a “VA personal loan” or imply that this is a VA debt consolidation program; technically it is not but the outcome may be the same in any case–the borrower applies for a new loan and gets cash back to use for personal needs.
Advance Pay For Currently Serving Military Members
For those still in uniform, advance pay options are available in conjunction with your permanent change of station move. Advance pay is described as “A one time temporary loan authorized to cover the extraordinary cost of relocating to the overseas area. Amount authorized will not exceed three months of basic salary.”
Advance pay must be paid back via allotment; the repayments begin in the paycheck after the advance is paid to the servicemember. The repayment period cannot exceed 26 pay periods.
Here’s the best reason to consider advance pay–service members can request a minimum of one month’s pay and a maximum of less than three months’ pay and there is no interest charged for this advance. It is essentially an interest-free loan. Sadly this option is not open to those who are not currently serving.
Personal Loans From Military Banks Or Credit Unions
Veterans, Guard and Reserve members, and active duty troops alike have options to join military banks such as Armed Forces Bank, military credit unions like Navy Federal Credit Union, or open accounts with military-association-required organizations such as USAA which restricts its membership to the military community.
These financial institutions often feature special perks and options including early pay for military direct deposit accounts, more competitive interest rates and terms on lending products, and the ability to get financial help or even credit counseling.
That’s one area where military-focused banks excel; understanding the real needs of its military customers. You may or may not need a debt consolidation loan; your military banking rep can help you decide whether a personal loan or line of credit is more appropriate for your financial goals or if debt consolidation loans are actually a better bet.
It all depends on the reason you need the personal loan.
Personal Loans From Military-Friendly Banks And Other Financial Institutions
What is the difference between a military bank and a military-friendly bank? Military banks like Navy Federal or Armed Forces Bank may require proof of military service or military association (family members of veterans or currently serving troops) while military friendly banks welcome both civilians and uniformed service members alike.
Personal loan options at military friendly banks such as Bank Of America or PNC Bank will vary. Some banks with military options don’t offer as many perks or rewards as others. It’s best to shop around for both the best deal on a military personal loan AND overall offerings that may also be worth exploring when your loan transaction closes.
When applying for a personal loan at a military-friendly bank, it’s best to mention your military affiliation up front to take advantage of any current promotions open to you.
Military Relief Societies
Not all personal loan needs are for long-term debt management. Some veterans or military families face temporary financial hard times and need a quick infusion of cash to buy essentials while riding out the hardship.
This is where military relief societies often play a role. Some are restricted to active duty service members. This is true for programs like the Navy-Marine Corps Relief Society Quick Assist Loan program. This is aimed at active duty sailors and Marines who have an emergency financial need for any amount up to $500. There are no application fees and there is a 10-month repayment period.
The VFW Unmet Needs program is a financial assistance option for both currently serving military members and veterans who meet the following criteria:
- Currently on active duty, with financial hardship from a current deployment, military pay error, or from being discharged for medical reasons.
- Discharged on or after Sept. 11, 2001, with financial hardship that is directly associated with “service connected injuries and/or illnesses.”
- Discharged prior to Sept. 11, 2001 with a financial hardship on a fixed income that must include VA compensation.
This program is NOT a personal loan, but rather a grant program with no expectation of repayment. Many Veteran Service Organizations offer such help in one form or another.
Debt Management Counseling Services
Those who may need personal loans to manage or consolidate debt should get professional advice from credit counselors or seek referrals to HUD-approved housing counselors (for those who need debt management help related to foreclosure avoidance). The Department of Housing and Urban Development and the Federal Housing Administration offer such referrals–call them at 1-800 CALL FHA.
Private companies such as Debt.org also offer financial advice and assistance for veterans and those struggling with debt associated with military service. These are important resources for anyone looking for an alternative to debt consolidation loans or for those who want to try a consolidation for the first time.
Personal Loans For Veterans To Avoid
There are certain high-interest, high-cost personal loan options service members and veterans should avoid. Payday loans, for example, can feature extremely high and predatory interest rates.
Some service members might be tempted to apply for a payday loan because they’ve heard that federal law caps the amount of interest that can be charged to qualifying military personnel under the Servicemembers Civil Relief Act. However, interest rate caps under the law won’t protect you from high rates that still fall under the cap. The Annual percentage rate for payday loans can go into the triple digits.
Avoid payday loans, pink slip loans, credit card cash advances (which likely cost more in interest rates than the credit card account’s normal charges) and other high-interest unsecured debt. Short-term lenders wind up costing consumers far more than the loans are worth.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
