Graduate Loans
Graduate loans are designed for university leavers to help them raise cash to cover the costs of starting working life.
They work in the same way as a personal loan in that they are simple, unsecured loans where you borrow up to £25,000 over a pre-determined length.
However, as the name suggests, graduate loans are for recent university leavers. To qualify, you usually must have graduated within two years of applying and must be in full-time employment.
Cash-strapped graduates may get funds on the day of acceptance but this usually comes with a fee of around £50.
Sometimes you will have to hold a current account with the same provider to get a graduate loan.
Some lenders offer better rates on their graduate loans than on standard loans but this is not guaranteed. So, before picking your borrowing option, ensure you shop around first so get a genuinely cheap loan. .
This interest charged on the amount borrowed usually depends on the amount of the graduate loan and sometimes the term as well. Most graduate loans come with a fixed interest rate which means monthly payments are also fixed. However, some flexible loans can have a variable interest rate.
Often, the less you borrow or the shorter the loan term, the higher the interest rate.
However, that doesn’t mean the graduate loan is necessarily cheaper than one with a higher rate given paying interest over a longer period can make the loan expensive.
For example, if you’re borrowing £5,000 at 10% annual interest over three years, you’ll pay approximately £800 interest. Borrow the same amount at 5% over ten years and you’ll pay around £1,360 in interest – £560 more.
When seeing a quoted interest rate also consider that the figure mentioned will only be a typical rate which only has to be offered to two thirds of successful applicants. This means the third of those with lesser credit scores or lower income may have to pay more than expected.
Once you get a graduate loan, some lenders allow you to start repaying it many months after you get the cash.
While this looks attractive on paper, bear in mind that interest will be accruing during that time, and as you’re not reducing your balance through payments, so it will be charged on a higher amount than usual, meaning costs could mount.
Before opting for a graduate loan, check whether you can get an interest-free overdraft via a graduate current account as this could be much cheaper.