As a student in full-time education it can be difficult to balance studying and your finances, especially when you have to pay for accommodation, course fees, tuition fees and textbooks amongst many other things.
That’s why it might become necessary to apply for another source of income, in the shape of a short-term loan. This could be due to a particularly expensive month towards the end of term, or your regular student loan has started to dry up.
As a follower of financial enlightenment and a lover of wisdom, the Guru would always lend assistance to those looking to improve their own knowledge (especially those studying fashion; his favourite subject after finance).
That’s why we’ve put together all the information a student might need if they’re looking to apply for a short-term loan, and the associated risks of borrowing in this way.
When are short-term loans for students necessary?
It’s not uncommon to struggle for money as a student, especially if you’re studying in an expensive area such as London, the south of England or another major city in the UK. It can often be difficult to afford to live in a certain place with such a limited amount of financial support.
For the most part, a student has a great deal to pay for, not least the actual tuition fees that can be up to £9,250 per year for undergraduates in the UK. As much as students can receive a formal student loan as well as an additional bursary, this still might not be enough to cover additional expenses.
A small loan might therefore become necessary for one-off expenses such as textbooks, transport or specialist equipment linked to their subject. Borrowing money in the short-term might be a good way to pay for necessities that crop up halfway through a term or during a period where a formal student loan has already been spent.
However, there are risks that come with taking out a short-term loan, especially if you’re already struggling with money to begin with, so may potentially struggle with paying it back in full. Read on to find out the risks involved with taking out a short-term loan.
What are the risks?
- Only borrow as much as you need – since a short-term loan is for a smaller amount, you should use it for things you actually need and not be tempted to borrow extra, as it can be more expensive to repay in the long run
- Make sure you can definitely afford the repayments – it’s no good borrowing money unless you know 100% that you can repay the amount on time and in full
- Time it to coincide with your next payday or student loan payment – furthermore, you need to ensure that you have the means to repay the loan, whether it’s through your next scheduled payday, a student loan instalment or a bursary payment
There are always risks attached to any sort of borrowing, especially when you are liable to repay the full amount within a strict repayment schedule. Thankfully a short-term loan isn’t usually any more than a few hundred pounds, so isn’t as risky as a much larger loan such as a secured loan or mortgage.
The last thing you need is to incur more debt on top of your short-term loan, especially when affording the essentials might already be a struggle. Plan ahead and always try to borrow responsibly.
Differences from government student loans
The biggest difference between a short-term and government student loan is usually the loan term, in that the former is usually repaid over months while the latter can be over a number of years. In fact, a student loan is actually written off if it hasn’t been paid in full after 30 years or when you turn 65 (though this depends on what year you started your course).
Whilst a short-term loan has a strict repayment schedule that is usually spread over a few months, a student loan only starts being repaid once you have started earning a certain amount. This is all dependent on the year you started your course, as the threshold has risen every year since 2012. At the time of writing you now have to earn more than £18,935 before you have to start repaying your student loan, but only if you started a course after 6th April 2019.
You can find more information on repaying student loans here.
What to look for in a short-term loan?
If you think a short-term loan might be a good way to afford some unavoidable expenses, you’ll want to start browsing available short-term loans to see if it would suit your requirements. Think about the following factors when finding the right student loan for you:
- Amount borrowed – as mentioned above, have a figure in your head that will allow you to cover your necessary expenses, but there’s no need to borrow more money that you don’t need
- Loan term – be realistic and choose a loan term that you can actually stick to. Try to aim for as short as possible so you don’t have too much time to accumulate interest
- Interest rate – this is likely to be high for a short-term loan, but if you keep the loan term as short as possible, you can keep your interest payments low
- Representative example – this might give you an indication of the overall amount you could be repaying, especially if the example is close to what you plan on borrowing
There are also two steps you should take prior to make any sort of application for borrowing money:
- Check your credit report – find out how you’re currently being viewed by lenders and whether you are considered to be ‘creditworthy’. If you have never borrowed money before this can also impact your rating as you will have a thin credit file
- Check your eligibility using moneymatcher – you can also find out whether you would be eligible to apply by inputting a few personal details into our free eligibility checker. This should narrow down your search and will keep your credit score safe in the process
Remember that lenders will be more likely to accept your application if you can prove to them you can repay the money easily through receiving a regular income. This means that if you are studying but technically unemployed, this can harm your chances of getting a short-term loan.
How do I know if the loan is right for me?
It’s important to be aware of all the terms attached to the loan offer, allowing you to judge whether or not it is right for you. It could be that the interest rate and subsequent repayments are too high or you would prefer not to borrow money for six months and have to make so many repayments.
Therefore, have a clear idea of exactly how much you would like to borrow and how long (ideally) you would like to borrow it for. If none of the short-term loans on offer match your criteria, you might want to seek out alternatives, such as an student overdraft or credit card, as they might be a bit more suitable.
Hopefully the information included in this article should help you make up your mind when it comes to borrowing as a student. Use the link below to start browsing short-term loans but remember to always check your eligibility using moneymatcher before you apply.