Student Loans
Don’t put your finances on hold while you’re studying, find out the loan options you have as a student.
When studying it can be a struggle to make ends meet; course fees and living expenses often start piling up quicker than expected when it’s your first time away from home. Many students can only work part-time or casually, and earn minimum wage (or close to it). However, there are loan options available to students if you find yourself in need.
How does a student loan work?
Student loans work in the same way as personal loans available to others that have left study and now work full-time. The main difference is the eligibility criteria, which are usually more flexible to allow those on lower incomes; with fewer assets; or with part-time jobs to apply and be approved. Because of this, student loans are usually for smaller amounts, and the terms and repayments may be stricter. However, these personal loans may also come with benefits, such as discounted interest rates or waived fees.
Keep in mind that while student loans can be used to finance a range of purposes, you may want to avoid taking out a student loan to cover small, everyday expenses. You need to factor the loan repayments into your budget before you apply, and if you are already struggling to manage everyday expenses, adding loan repayments may not be the best option.
Student loan options that are available
When it comes to selecting a student loan, there are a few options available:
- Secured personal loan. This type of loan requires you to attach an asset, such as a car or equity in a home, as a guarantee, to be approved for the loan. It can be fixed or variable and usually comes with a lower rate due to the guarantee, which can be repossessed by the lender if you default on the loan.
- Unsecured personal loan. This loan does not require a guarantee, so usually comes with higher rates. It is generally more flexible and can be used for a range of purposes, but also comes with fixed or variable terms.
- Medical student loan. This is an innovative type of loan offered through some medical schools, eg The University of Otago, Wellington to students in need. Students can borrow between $1,000 and $10,000, but acceptance is decided on an individual basis, and a guarantor is required. The loan is used to pay off the student’s university fees initially, and it is expected the loan will be paid back within a year of graduating.
- Graduate loan. If you have completed your studies you may be eligible to take out a graduate loan The loan can be used to finance anything of your choice and can help cover expenses while you find a job in your first couple of years out of uni.
- Car loan. If you are looking to purchase a car, students may also be eligible to take out a car loan with a range of lenders. These loans require you to attach the car to the loan as a guarantee, but in return, you can usually enjoy competitive rates and fees.
- Payday loan. If you find yourself strapped for cash and in an emergency situation, you also have the option of taking out a short-term loan. These are small, short-term finance solutions and can be accessed by those receiving benefits, working part-time, and those with bad credit.
How to compare student loans
Before you apply for any student loan, it is important to compare your options to ensure you choose the most competitive loan:
- How much can I afford? While you may be approved for the loan, bear in mind that ultimately it’s up to you to decide whether you can afford the loan. Take a look at the rate, the fees, and see how much your repayments will be. If you don’t think you l can comfortably make the repayments, you may need to reconsider taking out a loan. Use our personal loan calculator to help.
- Who is the lender? Are they reputable? Can they be easily contacted? Have other customers left positive reviews of their services/products online? The reputation of the lender should help inform your decision.
- How much can I borrow? You should also check the loan amount offered, to ensure it is sufficient for your needs. Keep in mind that the amount approved will depend on the criteria set by the lender and your ability to repay the loan.
- How competitive are the rates and fees? Compare the rates and fees you are charged, with other similar loan products and see how they fare. Are they competitive? You want to select the product that costs you the least, so make sure you get the product that gives you the best deal.
- What are the restrictions? You should familiarise yourself with the terms of the loan to see if any restrictions will affect you. The last thing you need is to take out the loan only to find out you can’t use the loan amount the way you wanted, or you can’t make extra repayments as you planned. Find out what you can and can’t do with a personal loan.
Benefits and drawbacks to consider
- Package options. Some lenders offer student package options that allow you to combine loans with transaction and savings account, credit cards and other products to save money.
- Tailored products. As the needs of many students are unique, many lenders have developed innovative loan products specifically for them.
- Flexibility. Some student loan products have flexible features that can help you to manage your loan better.
- Fewer options. As students generally work fewer hours and earn less money than those in full-time positions, there may be fewer loan options available.
- The risk of getting into debt. If you work casual hours or are on a strict budget, taking on a loan may put you at risk of getting into a cycle of debt.
Things you may want to avoid with a student loan
While student loans can offer you a way to access finance that is needed, you should consider your ability to afford the loan before applying. Students are generally on tight budgets, and a loan is a serious and long-term expense to take on. Consider your financial circumstances, compare the options available and decide whether a loan is right for you.
