Personal Loans for Military Members and VeteransUpdated: July 20, 2022
Veterans and current military members might consider applying for a personal loan for several reasons. 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 these instances, they may want to know how and where they can apply for a Department of Veterans Affairs loan. After all, participating lenders offer personal loans as well as VA mortgage 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.
Even without a VA personal loan option, there are a variety of choices for service members in need of a military-friendly loan, starting with the service member’s pay schedule, as we’ll explore below.
VA Debt-Consolidation Loans
VA loans are not available as personal loans. You also can not buy a home with a VA loan, apply for more money than you need to purchase and take the remainder in cash when you close the deal.
But there is a VA loan option that provides cash back to the borrower. It’s just not a new purchase loan.
Once you have made a minimum number of payments on a mortgage, you can refinance your home through the VA cash-out refinance loan program. Ask your lender for more information, as the number of payments lenders require may vary). After the original loan and closing costs are paid, any remaining funds go 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. The newer your home loan is and the fewer payments you’ve made means you’ll have less equity built up –and that means you’ll get less cash back at closing time.
You can use the cash you get back on the loan 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. While it is not, the outcome may be the same. 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, you may be able to receive advance pay in conjunction with your permanent change of station move. The Department of Defense provides these advance payments “to provide funds to meet extraordinary expenses incident to a government-ordered relocation,” according to the DOD Financial Management Regulation. You may also be eligible for advance pay in other specific circumstances, such as when you are deployed aboard a ship for more than 30 days.
You will need to repay the advance in installments beginning with the first day of the month after you receive the advance. According to the DOD, you will need to repay it within 12 months, unless you can show that would cause a hardship, in which case you would have 24 months to repay.
Service members can request a minimum of one month’s pay and no more than three months’ pay. According to Military OneSource, you will not pay interest for this advance.
Personal Loans from Military Banks or Credit Unions
Veterans, Guard and reserve members and active-duty troops can 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.
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, the ability to get financial help and even credit counseling.
Military-focused banks excel at understanding the real needs of their military customers. Depending on your financial situation, your military banking representative can help you decide whether a personal loan, a line of credit or a debt consolidation is more appropriate.
Personal Loans from Military-Friendly Banks and Other Financial Institutions
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.
Personal loan options at military-friendly banks such as Bank Of America or PNC Bank will vary. Some banks with military options offer fewer perks or rewards than 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 can play a role. Some are restricted to active-duty service members. For example, the Navy-Marine Corps Relief Society Quick Assist Loan program is for active-duty sailors and Marines with an emergency financial need for any amount up to $1,000. These interest-free loans have no application fees and must be repaid within 12 months.
The Veterans of Foreign Wars unmet needs program is a financial assistance grant of up to $1,500 for both currently serving military members and veterans. According to the VFW website, the applicants must meet the following criteria:
- For those currently on active duty, the financial hardship must be due to a current deployment, military pay error or from being discharged for medical reasons.
- For those discharged on or after Sept. 11, 2001, the financial hardship must be “a direct result of your service-connected injuries and/or illnesses.”
- Veterans discharged before Sept. 11, 2001, with a financial hardship must be on a fixed income that includes VA compensation for a service-connected injury or illness.
Other veteran service organizations offer such help in one form or another.
Debt Management Counseling Services
Service members and veterans who are seeking personal loans to manage or consolidate debt should get professional advice from credit counselors. Call the Federal Housing Administration at 800-CALL-FHA (800=225-5342) for a referral.
Those who need debt management help related to foreclosure avoidance can seek referrals to HUD-approved housing counselors. The Department of Housing and Urban Development offers a list of national agencies on its website.
The National Foundation for Credit Counseling is a network of nonprofit financial counseling agencies that offer financial advice and assistance for veterans and those struggling with debt associated with military service. These are important resources for anyone looking for help with money management, financial education or paying off debts.
Personal Loans for Veterans to Avoid
Veterans should avoid high-interest, high-cost personal loan options these include payday loans, which Consumer Financial Protection Bureau defines as a “short-term, high cost loan, generally for $500 or less, that is typically due on your next payday.” According to the CFPB, the interest on these types of loans can equate to an annual percentage rate of nearly 400%.
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. The cap on interest rates for active-duty service members is still high for payday loans – 36%, according to the CFPB.
Also avoid credit card cash advances, which are treated differently than credit card purchases, according to the CFPB. They generally start accruing interest from the date you withdraw the cash – not after a grace period, as with most purchases – and you’ll likely pay a higher interest rate.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News