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What's in this guide?
- What is a student loan?
- Types of loans for students
- Getting a personal loan as a student
- What is the cheapest student loan?
- What are my other student finance options?
- How to choose the right loan as a student
- What are the best loans for students?
- Personal loan cost comparison
- Will I be eligible for a student loan?
- Can I get a loan as a student with bad credit?
- How to build a good credit record
- Dos and don’ts of loans for students
- Compare loans as a student now
- The bottom line
What is a student loan?
While the term “student loans” is generally used to mean the government-supported finance offered to students in the UK, it can also refer to any private personal loans or other forms of credit that students are eligible for.
Loans jargon explained
- APR. The Annual Percentage Rate (APR) is an indicator of the annual overall cost of a loan. This includes the interest rate, as well as any compulsory fees. However, keep in mind that lenders only need to give the advertised APR to 51% of those who take out the loan, and the remaining 49% could get a higher rate.
- Interest rate. This is the percentage amount of interest you’ll be charged on your loan, and can be offered as either a fixed or variable rate. A fixed interest rate remains the same throughout the loan, while a variable rate can go up and down.
- Unsecured loan. A type of personal loan that does not require you to use an asset (such as a house) as collateral.
Types of loans for students
If you’re a student, chances are you’re used to operating on a shoestring budget even if you have a part-time job. This means your bank account balance may end up looking a bit grim if any unexpected costs come up during your studies.When you find yourself short of funds, one option is to borrow money from friends or family to avoid having to pay interest. But if the Bank of Mum and Dad is closed and you still need money, you might want to consider the following alternatives.
Private student loans
Private student loans are those taken out with a lender or loan provider, and not offered through the government. They are generally unsecured personal loans, which let you borrow an agreed amount and then repay it over a fixed term, usually 1-7 years. Private student loans can be used to cover the cost of tuition and student fees, as well as any other expenses you may have, such as accommodation, food and other living costs.
Student credit cards
While most credit cards will be off limits to the majority of students due to their limited credit history and low income, these targeted cards are easier to get approved for. Expect a wide range of interest rates across the cards on the market, with some offering 0% interest on purchases for a set period before ramping up the rate later on.
The best strategy with student credit cards is to use them and pay off your balance as soon as possible afterwards – do this every month and you shouldn’t be charged interest, even if it’s not a 0% card. Don’t use it to withdraw cash, as then you’ll start paying interest immediately and incur fees.
Credit-builder credit cards
Designed as a “stepping stone” product for borrowers with a poor or limited credit history, these credit cards don’t come with a 0% introductory period, and generally have a high interest rate. However, as the name suggests, these cards can help build your credit rating, which may make you more likely to be approved for another credit card or personal loan in future.
Getting a personal loan as a student
Taking out a traditional personal loan as a student requires careful consideration. Some lenders will not consider applications from students, and those that do will likely want you to have a strong credit rating. Lenders want to be sure that you’re likely to be able to repay your loan, and this may be hard to prove if you have no real credit history or a stable source of income.
More importantly, if you are approved for a personal loan, you’ll need to make sure that you can definitely afford your loan repayments.
With a guarantor loan, a friend or relative promises to step in if you fail to keep up with your repayments. These loans are offered by specialist lenders, and typically come with a high rate of interest. Again, you’ll need to be able to demonstrate that you’ll be able to afford your repayments.
Short-term student loans
Payday loans and short-term, high-cost instalment loans can be relatively easy to be approved for, but have an eye-wateringly high rate attached – up to 0.8% per day. As such, they should only be considered as a last resort. Some lenders, such as Smart-Pig, target students specifically, focusing on your next student loan instalment, rather than your next payday.
What is the cheapest student loan?
What are my other student finance options?
How to choose the right loan as a student
- Calculate how much you need to borrow. Work out a budget of your average living costs, and how much you can afford to repay.
- Use our table to search for loans for the amount you want to borrow. You can sort loans based on the lowest rate.
- Find the loan that’s right for you. Look for a loan that offers affordable repayments, and flexible terms.
- Check your eligibility. Make sure you meet the specific lender’s criteria, including things like minimum income.
- Apply for the loan.
What are the best loans for students?
Like with any loan, the best student loan will be the one that offers the most competitive interest rate and repayment terms. While government student loans may offer favourable repayment terms, these loans are not available to everyone. You may find you’re able to secure a student loan with a lower rate elsewhere.
You can read our list of the best tips to keep in mind when comparing student loans below.
Personal loan cost comparison
Loan amount: £3,000
- Loan term: 4 years
- Interest rate: 10%
- Monthly repayment: £75
- Total interest: £622
Loan amount: £3,000
- Loan term: 4 years
- Interest rate: 24%
- Monthly repayment: £94
- Total interest: £1,514
Will I be eligible for a student loan?
All lenders will put applicants through both a search with a credit reference agency (CRA) and their own internal affordability and risk assessments. As a student, you may have a very limited credit history – especially if you’ve gone straight from school into higher education, and/or a lower income.
Your circumstances may also be considered more changeable (and therefore more risky) to a lender, and realistically it can be harder for you to get access to traditional credit. The good news, however, is that many of the options above are specifically tailored to people in your situation.
Always check the eligibility criteria of the specific product you are considering before applying – as well as wasting your time, multiple applications for credit in a short space of time can damage your credit score. Most lenders now offer a “soft search” facility, where would-be borrowers can check their likelihood of being approved for a loan or credit card before submitting a full application, and without affecting their credit record.
Can I get a loan as a student with bad credit?
While there is no guarantee that you’ll be rejected, it may be difficult to get approved for a personal loan if you’re a student with bad credit, especially if you aren’t earning an income. If you’re young and have a bad credit score, the lender may consider you are too high a risk when it comes to repaying your loan. If you want to check if you’ll be able to get a loan with bad credit, you can find out your loan options here.
If you find that you won’t be able to get a personal loan with your credit rating, you may want to apply for a payday loan. Short-term lenders do not place the same importance on credit score, and are therefore more likely to approve you for a loan.
However, payday loans should only be considered as a last resort, and failing to repay a short-term loan can cause financial stress. It will generally be a better idea to try and improve your credit score and then apply for a regular personal loan.
How to build a good credit record
You may not have realised that you can improve you credit record by getting on the local electoral roll, and by setting up a current account with a few direct debits. If you can put a little into savings each month, even better, although that’s simply not possible for many students.
Perhaps the most important thing you can do is to keep up with any bill payments and not dip into an unauthorised overdraft. Such actions will remain on your credit record for a number of years.
Dos and don’ts of loans for students
- Compare options to get the most affordable form of credit you can get your hands on
- Check your credit report to see what you’re likely to be approved for
- Pay any loans back on time
- Seek assistance from student services
- Borrow more than you can afford to pay back
- Borrow money for non-essential items
- Make multiple applications for credit in a short time
- Regularly rely on short-term loans to fund your lifestyle
Compare loans as a student now
The bottom line
Always try all the 0% interest options first when you’re looking to borrow money. These could be loans from friends and family, a hardship fund, an arranged student overdraft or a student credit card. With the latter two options, the interest will eventually ramp up, so it’s best to pay it back before that point.
Only when all of these options are exhausted is it time to consider high-interest options such as credit-builder credit cards or personal loans. In this situation, it’s useful to compare the amount of interest you’ll owe, while also considering what form of credit you’re likely to be considered for.
With all these options available, a short-term financial shortfall shouldn’t be the end of the world for you. By searching for the best loan option and paying your debt on time, you’ll hopefully be back on your feet in no time.
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