Students: Tell the Difference Between a Good and Bad Loan
Students: Tell the Difference Between a Good and Bad Loan
5 Ways to Tell a Good Loan From a Bad Loan
If you’re applying for colleges or universities, or you’re a new student, you’ve probably figured out that a good education doesn’t come cheap. Even if your courses are affordable, you want to be able to afford that college lifestyle you’ve been craving for the past few years, right? A place of your own, a good social life, maybe even your own car… but how do you do that?
Student loans are what get most people through their studies, but choosing a suitable loan that isn’t going to bite you on the bum a few years down the line can be a challenging and mind boggling experience. The problem isn’t that there are so many lenders out there; it’s that a large portion of these lenders feed on young, innocent students like you as if they were giant praying mantises.
Many deceitful lenders rely on inexperienced students with a sense of urgency and desperation and sell them some of the worst loans on the market. Don’t become their prey!
Use these simple tips to spot a good loan from a bad loan and make sure you enjoy your college experience to the full without the borrowings following you around like a bad smell for your three, four, or five years as a student. These are supposed to be the best years of your life!
1. Interest Rates
Sometimes, a loan just seems far too good to be true. Unfortunately, in many cases it normally is. A loan may appear to be exactly what you’re looking for, i.e. a generous amount that will last until you graduate (as long as you’re careful!), affordable monthly repayments, and maybe even a broker who’s a bit of a hottie! Perfect…. but there’s always one thing you need to confirm: APR!
APR stands for annual percentage rate, and can really change the way you view your repayments. So you only need to pay back a small amount each month? Great! But how long will you be paying that for, and how much will you be paying back in total? For a personal loan, anywhere from 8% to 20% is considered standard (good loan!) although some short-term lending schemes charge as much as 5000% (bad loan!).
2. Key Phrases
So you’re excited about college, keen to get on with the experience and desperate for some extra cash, but you’re also a little wary about taking out a loan. You don’t want to get stung, it’s understandable. You’re a sensible student with your head screwed on; you’re not going to get duped into a ridiculous loan… Or are you? Sadly, the way some loan contracts are worded, even the most clued up student can get caught out.
Beware of contracts that mention your responsibility to make repayments as they are amended. For example, “You must agree to repay your loan in line with the regulations that apply at the time the repayments are due and as they are amended…” This means your lender could increase your payments at any time and you’ll still be required to pay. While a variable loan that changes in line with inflation is normal (good loan!), your lender personally upping your repayments is not (bad loan!).
3. White Lies
This is a tempting one. If you meet with a loan broker, you’ll likely be taken through a number of loans that are suitable for your personal circumstances. However, what a praying mantis might do is show you some loans that may have better rates and terms, but which are offered only to graduates, or those on specific courses or living in certain areas. For better commission, brokers may try and persuade you to tell a few white lies.
What’s the harm, right? You’ll be graduating soon anyway, your course is vaguely related to the sciences and you’re just over the boundary of the loan offering authority. Don’t fall into the trap! No matter how small the lie is, you’ll be up the creek without a paddle. You’ll be liable for huge fines on top of your repayments and may be refused further lending (bad loan!). Say no and move on to a loan that you’re eligible for (good loan!).
Not all lenders are sharks, honest.
In fact, you may even like your lender. He’s friendly, confident, the sort of guy you could go for a drink with. He knows you by name, you’re his favourite client, and you’ve come to trust him. He’s like a buddy, no problem. But remember, never mix business and pleasure. What happens in the office is business and nothing else.
So when your lender, your pal, asks you to sign a form that hasn’t quite been completed yet, think twice. It’s almost finished and it’s just missing a few vital numbers here and there: the APR, the repayment period, the initial borrowing…. He’s just not had time to fill it in, you’ll sign it now and he’ll fill it in later, right? Wrong! Never sign when there’s blanks. Never. You may as well be selling your soul to the devil (bad loan!). Make sure you know 100% what you’re getting yourself into before you put pen to paper (good loan!).
Exact repayment figures are sometimes left until the last minute. Brokers sell you the loan to the point where you’re ready and raring to go, throwing in the monthly repayment rate at the very end when your heart makes it difficult to say no, despite whatever your head may be thinking. Ask about the repayments straight away, and be wary of those who don’t give a clear answer straight away (bad loan!).
High repayments are, of course, something a lender wants to keep hidden. They want to get you to a point where you can’t possibly say no and then just slip the figure in there, hopefully unnoticed. If a repayment seems high, if it seems like you wouldn’t be able to afford to pay that amount consistently, then speak up! Don’t just go for it and hope for the best. You want the information laid out in front of you from the word go (good loan!). If something isn’t there in black and white, ask yourself why.
About The Author:
Amy Harris is a writer for Financial Training – which helps students worldwide find the right finance and business courses, such as CIMA UK courses and ACCA courses (http://www.financialtraining.co.uk/acca). She enjoys helping students find the right school & career after they graduate.