Before you apply
Before you apply for any form of credit, you need to consider how you’re going to repay the loan and whether you have the income you need to cover the repayments. It’s also worth noting that once you start earning over a certain amount, you will be expected to start paying your student loans back as well, so factor this into your budgeting. If you’re not sure how much you’ll have to pay back on your student loan, have a look here.
“graduate loans work in much the same way as unsecured personal loans...”
Whether you’re looking for financial support while you study towards a further qualification or you want to boost your finances as you settle into your first job out of uni, you might be considering a loan. If you are, a graduate loan could seem like the obvious choice.
Graduate loans work in much the same way as unsecured personal loans; you agree to pay back a certain sum each month with interest. Unlike a secured loan, you do not need to be a homeowner to take out a graduate loan, although you won’t be able to borrow as much as some secured loans offer. However, unsecured borrowing is generally considered to be less risky than a secured loan, as your home is not at risk if you fall behind with your payments.
So, what criteria do you need to meet to be accepted for a graduate loan? Well, just like with any other unsecured loan, the lender you apply to will look at your income and your spending. They’ll assess whether or not you’re earning enough to make your repayments and how long you’ve been in your current job – which can help them weigh up how secure your income is – and whether you have enough spare cash each month to afford the repayments. They’ll also look at things like whether you share any financial links with someone else, and whether or not you’re on the Electoral Roll.
Another factor lenders take into account is your credit history. If you’ve just graduated then you may not have had access to credit for long, as you have to be aged 18 or over to take out a loan or credit card. Lenders like to see evidence that you know how to responsibly manage your credit. Of course, if you’re still in your early 20s you won’t have had much time to show this, but graduate loan providers will have taken this into account.
If your application for a graduate loan is accepted, you will make one – usually fixed – payment a month for the term of the loan, which will include both your repayment and your interest. The interest rate is expressed as an APR (Annual Percentage Rate), and it will be set out in the credit agreement you get before you take out your loan. The interest rate you end up with may be higher or lower than you originally saw advertised: what you’re offered all comes down to your personal circumstances and how well you’ve managed your borrowing in the past.
You may be thinking that so far there doesn’t seem to be a whole lot of difference between a graduate loan and an unsecured loan, and you’d be right. The two loans work in essentially the same way, but because a graduate loan is specifically designed for those who have recently left university there are some differences. On the one hand, having a very limited credit history may not stand against you if you apply for a graduate loan, as the lender will expect this. Similarly, the rate of interest attached to this type of loan may be lower than on other borrowing options as it’s designed for people taking their first step on the career ladder. However, on the other hand you may find you can’t borrow as much with a graduate loan as you would with another type of loan.
If you plan to apply for a graduate loan, it’s likely that you’ll need to have a current account with the lender that provides it. This is because the lender will already have a record of your financial history they can use as proof of your ability to manage money if your credit history is limited, but this requirement means you’ll be pretty limited in who you can apply to. If you think a different bank or building society provides a better graduate loan deal than your current one, you could consider switching your current account over first. However, one of your preferred lender’s requirements could be that you’ve had a graduate account with them for a few months so give yourself time to switch before you need to borrow.
Borrowing to fund further studies?
If you’re considering borrowing to fund further studies, there will soon be an alternative to graduate loans that should suit your needs. From 1st August 2016, the government is offering Masters loans, which will provide up to £10,000 a year for both taught and research Masters degrees across all subject areas. The money will be sent in three instalments each year and your repayments won’t start until you’re earning over £21,000. Because the new loans have not been launched yet, the details may change – you can keep up to date with them here.
“speak to your lender as soon as possible to see if you can come up with an alternative payment plan...”
What if I struggle?
Once you’ve taken out a loan, it’s vital you keep up with your repayments as if you start falling behind you may be hit with additional charges. On top of this, your credit history could be affected, and borrowing in the future could be difficult as a result. If there’s an emergency that means you think you’ll miss making one of your repayments, it is sometimes possible to defer payment for a month. This is called a payment holiday and can come in handy sometimes, but it’s important you restart your repayments as soon as possible because your lender will still charge you interest over this month. Be aware that by taking a break from your repayments, you will be increasing how much interest you pay overall.
Unfortunately, it may be that this isn’t a one-off occurrence and you’ve started to struggle to make your loan repayments on time. If this is the case, speak to your lender as soon as possible to see if you can come up with an alternative payment plan.
Are there alternatives?
Just because you’re a graduate, it doesn’t mean you’re restricted to credit that’s specifically been designed for recent university-leavers. You can find out more about the other forms of credit available for graduates in Part Two of our guide.
Want to know more? Read part 2 of our guide here.