Most students have to operate on a shoestring budget. That means you could be left without funds when unexpected costs pop up during your studies, especially if you’re unable to hold down a part-time job during this time.
Warning: late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Please note: high-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.
What are my loan options as a student?
When you find yourself with a financial shortfall, one option is to borrow money from friends or family, to avoid interest charges. If the Bank of Mum and Dad is closed, however, and the expenditure can’t be put off, you might want to consider the following alternatives.
- Hardship funds. Some universities or colleges set up hardship funds. Each fund will have its own eligibility criteria, and a finite amount of money available – in other words, when the money’s gone, it’s gone, no matter how eligible you are! In some cases the funds don’t need to be paid back, but in other cases funds are issued as a loan (generally at very favourable rates). Contact your university’s student services department to find out more.
- Payment plans. If you owe a large amount of money to a utility provider, such as a gas or water company, most will allow you to set up a payment plan to ensure the bill gets paid. Always get in touch with the utility provider before you miss a deadline for payment, or you could damage your credit record.
- Overdrafts. Many student bank accounts come with a generous interest-free overdraft to help you through any financial hardship. Bear in mind, though, that the interest charges really sting if you stray into unarranged overdraft territory, or after your educational spell ends.
Student and graduate current accounts
- 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 you’ll start paying interest immediately and incur fees.
Student credit cards
- 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 they have a high interest rate.
Credit builder credit cards
- Personal loans. 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. Most importantly, the loan repayments will need to be affordable for you.
Fixed-rate personal loans
- Guarantor loans. 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 the repayments would be affordable.
- Payday 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.
Payday and short-term instalment loans
Will I be eligible for a 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.
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.
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
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.