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Borrowing Money

As a student, borrowing money may, at times, be unavoidable. Rather than thinking of credit as good or bad, it’s more helpful to think about whether it is manageable. This means considering if the cost of credit outweighs the benefits of what you would like to buy.

This page is designed to help you understand the type of questions you should ask yourself before making a decision to apply for credit, and help you understand the types of credit that are available.

You’ll also find help to get the most out of your money when it comes to repaying debt.

Student specific borrowing

Most students borrow money in the form of the student loan. While it is a form of credit, it is very different to a loan from a bank.

Find out more about how student loans work.

Find out more about the student loans available to UWS students by level of study:

 

 

The golden rule about student borrowing is simple – always borrow in the following order:

 

  • Student loan

  • Interest-free overdraft

  • Commercial borrowing

Commercial borrowing

This is borrowing from banks and other lenders who make money from you, unlike with a student loan.

Before you borrow

Before you think about borrowing money, there are a couple of important things you need to do:

 

  • Make sure you have all the income you are entitled to through student support, benefits and income through employment

  • Make sure you are making the money you do have stretch as far as it can

Is there another way to get the money you need?

Borrowing money to buy the essential things in life, like food, is not recommended. If you are considering borrowing money because you struggle to make ends meet, there are other options you can explore.

Most students will find themselves eligible for other university funds that may help. Find out more about additional financial support for UWS students.

Types of commercial borrowing

There are many different ways to borrow money through a commercial bank.

Credit cards allow you to spend money you don’t have and apply an interest rate. Best avoided for everyday spending or withdrawing cash and it's a good idea to pay in full each month to avoid interest.

Store cards are like credit cards that tie you to one store. They usually offer great deals but can have high interest rates. Hire purchase is like a rental agreement. You pay weekly or monthly amounts but don’t own the product until you have paid in full. Weekly amounts may seem manageable but interest rates can be massive.

Bank loans are hard for students to come by and involve you receiving a lump sum and paying a regular amount back each month. Unsecured loans are the most common for borrowing smaller amounts. Secured loans are more serious as they are secured against something valuable, such as a home or car.

Payday loans are short term loans designed to cover the shortfall before payday. They are not designed for students and are best avoided. They might seem like a good deal to begin with, but many people, especially students, struggle to repay as agreed, meaning extra charges are added and the debt spirals out of control.

Can you afford to borrow?

Borrowing money will involve making repayments, so it is important that you calculate how much of a repayment you can afford before committing to any agreement.

You shouldn’t try and commit to borrowing if the repayment is more than you can afford. The impact of not being able to keep up your repayments as agreed can be significant.

The true cost of borrowing

The true cost of borrowing is the amount of money you plan to borrow plus the interest that you will be charged on this loan.

Most lenders will be able to tell you the true cost of borrowing from them before you apply or commit. Those that don’t will give you enough details to work it out yourself.

APR is the way most lenders reflect the cost of borrowing. Comparing APRs of different lenders is the easiest way to compare which is cheapest.

Money Saving Expert's interest rate guide for beginners explains everything you need to know about interest rates including savings, credit and APR.

Planning your repayments

It is very important to stick to the repayment terms of any loan you take out, and to pay at least the minimum payment towards credit cards each month.

The general rule about repaying debts is to pay the most expensive debt first. While it can be tempting to get rid of the smaller debts first, it will only cost more in the long run.

Money Saving Expert's minimum repayments calculator can help you to work out how much it costs to borrow on credit cards.

Always try and use direct debits, so you don’t have to remember to make the payments every month. Keep a note of each payment date, and check your bank account regularly to ensure you have enough money to cover the payments.

You can find out how to get the most out of your repayments as well as minimising any long-term impact on your finances on our debt advice page.

Credit rating or scoring

This is the financial history the company looks at when undertaking a credit check. There is no such thing as a universal system as every lender has their own system.

You can take actions to improve this, which can result in you being offered credit with better deals attached.

You will find a lot of useful information about credit scores and how to improve yours on Money Saving Expert.

Credit unions

A credit union is owned by its members and is essentially a community based savings and loans provider. Without the pressure of making profits, many credit unions are able to provide competitive financial services to local people who may not be eligible to borrow from banks and who may have needed to resort to very expensive payday lenders.

You can find out more about credit unions on our saving money page.

Last updated: 23/08/2017

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