What Is A Student Loan?
A student loan is a loan borrowed to pay, generally, higher education from the government or a private lender. The loan must be repaid in the future, and the interest accrues over the term. The funds usually cover tuition, lodging and board, books, and other fees.
However, not that scholarships and grants are not the same as student loans. Loans must always be repaid. On the other hand, scholarships and grants do not need repayment. Moreover, certain loans can be paid back after some time or after the students start earning independently. This waiting period is known as the moratorium period.
Types of Student Loans
Federal Student Loans
These loans are provided by the federal government, and Congress sets the interest rates each year. In addition, they come with features such as the opportunity to tie payments to your salary after you graduate or the ability to have loans canceled if you work in the public sector.
Private Student Loans
Private loans are made to students by banks and other financial institutions. When applying for private loans, the lender will want to see proof of your ability to repay the loan, which is usually a solid credit score. However, a student may need a co-signer or guarantor to assist them in qualifying.
Refinance Student Loans
You may be eligible to refinance student loans after graduation if you have a good payment history. You get a new repayment schedule with a lower interest rate from a private lender in debt consolidation. However, you need a solid credit score to refinance. If you include federal loans in the bundle, you'll forfeit your federal loan safeguards.
How Does A Loan for Students Work?
Provide Your Basic Information
First of all, you will be needed to submit your basic information like name, address, and contact details. In addition, you will also be required to submit identification documents, including the guarantor's, to assess your or the guarantor's ability to repay.
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The lenders attached with UKBadCreditLoans assess your details and provide you with a quote within minutes. So it gets as instantaneous as it can get.
Submit Bank Details
After you finalize the quote with which you want to go ahead, you must also provide the bank account details. Here, you will receive the loan amount, and the recurring repayments of the principal amount and interest will be made from this bank account.
Sign the Contract
A contract will be provided to you stating all the terms and conditions which you are required to sign to finalize the proceedings. Therefore, it is advisable to read the contract documents carefully before signing them.
Get Your Loan
Once all these proceedings are done, most lenders will provide you with the funds in your bank account within the same day of applying.
Start repaying your loan
Depending on the conditions agreed upon, you will be required to repay the loan in recurring installments. If you default on the payment of these installments, your or the guarantor's credit score may suffer.
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Representative Example: Rates from 43.1% APR to 1333% APR. Minimum Loan Length is 1 month. Maximum Loan Length is 36 months. Representative Example: £1,200 borrowed for up to 75 days. Total amount repayable is: £1506. Interest charged is 0.34% per day, amounting to £306, annual interest rate of 124% (variable). Representative APR: 49.7% (variable).
Do I Qualify for a Student Loan?
There are a few prerequisites for someone to qualify for a UK students loan. To be eligible to get a student loan, the borrower ought to be over 18 years of age. Moreover, loans are disbursed only to those eligible borrowers who are UK, EU, or other international students in recognized universities in the UK. Finally, note that to qualify for getting the loan, it is also necessary that the borrower is a resident of the UK.
How Much Can Students Borrow?
In terms of the amount of money you can borrow and how long you have to pay it back, short-term student loans in the UK are largely identical to other types of short-term loans. Most student loans are for amounts up to £1,000 and must be repaid within three months.
There are exceptions, and many direct lenders will now customize a loan up to $5,000 to your unique needs. Because these loans are short-term, their APRs are frequently exorbitant. As a result, students should only take out short-term loans if they have no other option and are convinced that they will be able to repay them on time.
Can I Extend the Repayment Periods?
As mentioned earlier, some lenders provide a moratorium period for students taking out loans. This enables them to pay the installments of the loan sometime later, either which is initially agreed upon or when the borrower graduates and finds employment. However, others do not provide such a feature, and you may have to attach a guarantor with the application form.
Will Student Loans Affect My Credit Rating?
The answer to this question is both positive and negative. Taking out a loan and returning it on time has no negative impact on your credit score and may even boost it because it demonstrates your ability to repay a debt. However, if you skip a payment or fail to return the loan, your credit rating will suffer.
Moreover, there is another way to harm your credit score that many people are unaware of. For example, if you ask for a loan and are turned down, your credit score may suffer; as a result, making it much more challenging to get accepted in the future.
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Benefits of Student Loans
No Early Repayment Charges
In case you want to save on interest and pay the debt off early than the prescribed term, there are no early repayment charges that you will be required to pay.
You only have to pay just £5 a month during term time and for up to 3 months after you complete graduation.
7 - 10 Years
Some lenders will also provide the option to spread out the loan repayments from 7 to 10 years. This provides much-needed flexibility to the students.
If money is tight after graduation, some lenders also give you the option to take two three-month payback pauses. However, while your payments are halted, you will continue to earn interest.