Graduate loans work in the same way as unsecured personal loans, but banks tend to offer better rates for graduates. You will normally have to hold a current account with the same bank or building society to be eligible for a graduate loan.
A lump sum is lent in return for you agreeing to make regular repayments, usually by direct debit. Graduate loans are available for up to £25K and are repayable over a period of time, usually between six months and 10 years.
Lenders will charge interest on the amount borrowed. This tends to be fixed at the start of the loan, which means that the repayments remain the same throughout the term; however, some loans, such as flexible loans, can be variable.
This interest charge is shown as an APR (Annual Percentage Rate). All lenders are required by law to quote the APR. The advertised typical APR quoted needs to be offered to at least 50% of borrowers.
The APR usually depends on the size of the graduate loan and sometimes the term as well. This means that the best rate for one graduate loan amount may not be the best rate on all.
Some lenders may not offer the same rate to all of their borrowers. You need to check the best rate dependent on the amount and term you are after.
You may not always get the advertised representive APR on a graduate loan. The rate you are given can depend on your credit rating. Lenders will refer to a scoring system to determine how credit worthy an applicant is.
Paying off your graduate loan early can save you hundreds of pounds in interest. It is important to remember, however, that some lenders apply penalties to those who close their graduate loans before the end of the term.
Many lenders will allow a break between when you receive your loan and when the first payment needs to be made. While this gives you a break from payments, interest is still charged over this period, which actually increases the total interest payable. Lenders also offer breaks during the loan term, but interest is again charged on the amount not paid. This means a larger loan amount is left unpaid for longer. These breaks may also incur charges.
Some lenders offer a same-day funds facility, which means you receive your money on the day you complete the application. There is usually a fee for this service, which can be as high as £50, so consider this carefully.
Most lenders need a direct debit to pay the monthly instalments on your graduate loan. You need to ensure that your bank account can accept these and ensure that the money is available for making payments.
This is an optional insurance that will cover your repayments should you be unable to work under certain circumstances. This can include:
It is important to check the smallprint to ensure that the cover provided is suitable for your needs.
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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