2.0 - Guide to Student Personal Loans
In this section:
Student personal loans are similar to student credit cards - they offer less fees, easier approval but access to lower amounts of credit.
2.1 - What types of personal loans are there?
2.11 - A secured personal loan is one that is backed by your own assets. This is called the 'collateral' (something you own of value) and can be claimed and repossessed by your lender in case you're unable to pay back the loan.
Because the bank can call on your assets to be sold in the case of you being unable to repay your loan, there is less risk of defaulting (not repaying your debt) and thus interest rates on secured loans are lower than unsecured.
2.12 -An unsecured personal loan is basically credit that has no direct liability to your own personal assets.
As it's not backed by your own collateral, interest rates are typically higher as there is more risk involved with lending to you.
2.2 - What are the advantages of student loans?
Parental backing: As well as unsecured and secured loans, student loans can often have a parental guarantee. Loans backed by your parents typically offer the lowest interest rates, as parents are generally good collateral to call upon.
No establishment or ongoing fees: Regular personal loans often charge a ~$500 'application approval fee' along with an ongoing 'monthly service fee'. Student loans often have neither.
No fees for deferred payments: Personal loans often let you withdraw repayments you've made in case you're in need of some emergency funds, but it often comes with a fee. Student loans regularly forego these withdrawal fees.
2.21 - What's the catch of a student loan?
On the surface, student loans sound great. Many offer the opportunity to borrow money and repay nothing until your studies are over.
It sounds ideal - you have no money while you're studying, but you can just pay it off as soon as you graduate and get a job right?
The catch is, during your studies, interest is still accumulating. Let's look at a hypothetical case study:
Caroline applied for a student personal loan and got approved. Her interest rate is a fairly modest 10.99% p.a, and she doesn't need to pay a cent until she graduates 5 years from now.
Originally, she only needed $1,500 for a computer and some equipment. However, she was approved to borrow up to $5000, so she figures she might as well spend the extra credit she was approved for.
"I'll have plenty of time to repay it once I start my career".
By the time Caroline finishes her studies; she notices that she owes $7,747.50 already. Something's wrong - her loan term is 3 years after her studies have finished. Why has she been charged almost $3,000 in interest already?
What Caroline didn't realize was that even though she didn't have to make any repayments during her 5 years of studying, interest was accumulating the whole time.
Ultimately there's always a price for convenience. Loans do provide flexibility - you won't be forced to repay only after your studies have finished - you can choose to repay on a month to month basis if you please.
2.3 - Student loans available for online application
Some examples of quality student personal loans offered to Australian students include:
2.4 - What about student car loans?
Car loans are basically the same thing as a personal loan.
The advantage of a car loan is that the interest rate is often cheaper, as the car itself can be reclaimed and sold in the case of you being unable to repay your debt.
Because the car itself can be used as collateral, student approval for car loans can also be easier than say, a personal loan for a vacation.
For more information about car loans, visit: http://www.youthcentral.vic.gov.au/Managing+Money/Financial+assistance/Car+loans/