A guide to graduate loans
Tuesday, 08 November 2011 04:25
By Kate Saines
If you have graduated in the last few years and are looking for ways to fund a business venture, continue studying or fund living costs whilst on an internship a graduate loan could be the answer.
Unlike student loans, they have higher interest rates and require repayment immediately – regardless of your income. What’s more they are also available from a variety of high street providers.
But finding the right loan – especially if you are new to borrowing or banking – could prove an arduous task as there are so many factors to consider and plenty of pitfalls to avoid.
To help we’ve compiled a guide to help you learn more about graduate loans and how to find the best ones on the market.
What is a graduate loan?
It’s a loan available exclusively to graduates, usually those who have graduated in the last two years.
You’ll essentially be taking out an unsecured personal loan, which is where you borrow money without putting up an asset, such as your home, for security.
You’ll receive a lump sum of cash which will need to be repaid regularly over a period of time which can last from six months to up to seven years.
The lender will charge you interest on these repayments so it’s essential when looking for a loan you take into account the rate, usually expressed as an annual percentage rate (APR).
The amount you can borrow varies depending on the provider, but across the market you can take out loans from as little as £1,000 up to as much as £25,000.
You may be able to find smaller loans, of £500, but this is rare. Generally the maximum most banks will lend is up to £5,000.
Most graduates use these loans to fund business ventures and some use them to help fund any additional studies they might want to carry out such as a professional qualification or postgraduate degree.
How graduate loans differ from normal personal loans?
Graduate loans work a little differently from normal loans. Most importantly, you’ll need to be a customer at the bank providing the loan to qualify.
As a recent graduate with a student loan and the burden of three to four years of scrimping under your belt the prospect of taking out a mainstream loan might seem bewildering.
However, graduate loans are designed specifically with this in mind. So lenders tend to offer you preferential terms.
This could be through a lower interest rate than a mainstream loan or they may offer you a three-month break after receiving the cash before you’ll need to start making repayments. None of these ‘perks’ are guaranteed, however.
What to watch out for
As mentioned, to qualify for a graduate loan you will already need to be a customer with the bank in question.
It may well be a good idea, therefore, to plan ahead. So when you graduate, if you think you might need a loan in the future for a postgraduate course or another venture, choose a graduate current account with a bank offering a good loan deal.
Read the terms and conditions carefully before taking out a loan, especially the section on early repayments. This is because if you are able to pay off your loan early, it will save you a good deal of money in interest, but it may also incur a penalty.
Be careful when taking out Payment Protection Insurance (PPI) too. This is an insurance policy which will help you pay the loan should you be in a position – due to an accident, illness, unemployment or death – of not being able to make repayments.
Don’t immediately sign up if your bank suggests purchasing this. Find out the details, and carefully read the terms to ensure it is right for you. Then, if you decide you would like to take out PPI, see if you can find a better deal through a broker or another source first.
If you choose an account offering the chance to defer repayments for a short period (usually one month to three) after receiving the loan, make sure you are aware of any ‘conditions’ attached to this.
Lenders may still charge you interest during this period so you will simply be increasing the amount of interest you pay.
Finally, all loans are subject to credit checks. If you have a bad credit record, County Court Judgements (CCJ) or other ‘black marks’ against your name you’ll find it difficult to get a loan. Even if you are accepted, you’ll find you’ll be liable for a much higher interest rate than advertised.
Find out more: How to get a loan if you have bad credit
Graduate loans available
Here’s a taster of some of the loans on the market at the moment to give you an idea of what’s on offer.
Barclays Bank
Interest rate: Fixed at 12.9 per cent APR representative
Loan size: £500 to £10,000
Other information: A repayment holiday of three months is offered at the start of the loan. However, you must be in permanent employment to be eligible.
Royal Bank of Scotland – Flexi-loan for graduates
Interest rate: Fixed at 18.9 per cent representative
Loan size: £1,000 to £15,000
Other information: Repayments can be deferred for up to four months if you have a firm offer of a job, or for up to 12 months if you are travelling but have a firm job offer at the end of this period.
HSBC
Interest rate: 6.4 per cent representative
Loan size: £5,000 to £25,000
Other information: There is an option to defer repayments for the first three months or take a repayment holiday every January for the life of the loan. Candidates must have graduated within the last five years to be eligible.
Alternatives
If you do not qualify for any graduate loans or are uncomfortable taking on such a big responsibility there are other ways you can finance your post-university ventures.
Professional and career development loans are available for people undertaking training to boost their skills, and can even be used to help fund postgraduate courses.
You’ll benefit from a reduced rate of interest, currently 9.9 per cent, and the Skills Funding Agency pays the interest while you are studying.
There is more information on these loans at the Direct Gov website by following this link. Alternatively, if you need a smaller amount of money, consider taking out a graduate account with a good overdraft facility.
Banks are keen to lure newly-qualified graduates from their old student accounts and so tend to offer some attractive terms on their graduate accounts in a bid to gain new custom.
As a result you are likely to find a number of zero per cent deals on overdrafts. If you do take this route, watch out for ‘stepped’ overdraft rates – this is where banks reduce the level of your overdraft over the years.
Find out more: What is the best student bank account for 2011-12?
Use the Myfinances.co.uk comparison tables to find the best deal on a graduate loan.
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