What are the Different Types of Loans for Students? If you are a student, chances are that you are strapped for cash. Not only is it likely your first time living far away from home, but you will only receive one small income from a part-time role to keep up with your studies.
Anyone heading to college or university must start seriously considering how to fund their further education. Many financing options exist, with maintenance loans, tuition fees, and grants available for students.
As a result, there are many funding options — to the point where it can be pretty overwhelming.
A Student Credit source like CreditNinja is a great place to start searching for appropriate loans as a student. We’ve also narrowed down our top options for the different types of loans for students in this article.
Different Types of Loans for Students
#1. Guarantor Loan
Suppose you are a student struggling to get a loan due to bad credit or other reasons. In that case, guarantor loans offer a great opportunity to borrow considerable money.
These work the same way as any other loan: you borrow money from a lender and repay it in monthly installments. The length and overall terms of the loan agreement will be ironed out before you begin paying back the loan amount.
However, the key difference is that you need a third-party guarantor – a friend or family member who will step up to cover your payments if you cannot do so. Students are notorious for struggling with finances, so this provides security and peace of mind.
The guarantor will sometimes be the one to receive the loan. They can then decide whether to give it to the borrower or back to the lender within the cooling-off period.
#2. Personal Loan
A personal loan involves a financial institution or bank loaning you a specific amount of money repaid monthly. These types of loans can be used for various purposes and are a great way to lessen the stress of life when undertaking your studies.
Personal loans can be very useful for larger expenses if used responsibly. For example, if you are a student nurse or midwife doing a year in a specific industry and require a car to get to placement, a personal loan can help you to cover the costs.
With personal loans, you must adhere to a strict monthly repayment plan and pay off your debt by a specific date. If you do not do this, you will be charged a high-interest rate, which is the worst-case scenario for any student!
#3. Maintenance Loans
These are loans that cover day-to-day costs. They can be spent on just about anything but are intended to purchase textbooks, accommodation, and food.
The total amount of money you receive through one of these loans depends on your parent’s combined income. It also depends on whether you earn a considerable wage in a part-time job alongside your studies.
Truthfully, the amount you get from a maintenance loan will not cover the cost of living, and you will need to find a way to supplement your living with external contributions. This includes government help and financial aid from friends and family.
#4. Secured Loan
A secured loan might be a great option for students as it allows you to secure finance with a much lower interest rate than an unsecured loan. And if you have a low credit score and want to finance a bigger purchase, you may want to consider taking out a secured loan.
These loans require you to use something valuable that you own, such as a piece of jewelry or a car, as collateral. This is a good way for the lender to guarantee they will get their money back within the agreed terms.
If you cannot repay your debt, a lender with which you have taken the loan can sell your asset and get their money back. This may be risky, but it might provide you with lower interest rates and longer terms than other types of loans.
#5. Short-Term Loan
As the name suggests, this type of loan is used when you opt to borrow money from a loan provider for a set period and agree to make monthly payments until the debt has been repaid.
These loans are used to obtain a temporary personal or business capital need.
They must be repaid quickly (usually within 6 months to a year); otherwise, they will be considered a medium or long-term loan, which can last a couple of years at a minimum.
Taking out one of these loans will impact your credit score. The overall effect that it will have on your credit score depends on how well you run your finances. You may be able to improve your score by paying the loan on time, yet this is not a guarantee.
#6. Federal Direct Unsubsidized Loan
This non-need-based loan has low-interest rates and flexible repayment options for students, helping to cover the cost of a career or college school. These loans are widely available for undergraduate, graduate, and professional college students.
Borrowers do not need to show financial need, but the loans immediately accrue interest, so that’s something important to keep in mind. This means that this loan will continue to accrue interest during and after you are studying for your degree.
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Frequently Asked Questions
What are federal student loans, and how do they differ from private student loans?
Federal student loans are loans offered by the U.S. Department of Education to help students cover education expenses.
They usually have fixed interest rates and various repayment options.
Private student loans, on the other hand, are provided by private lenders and may have different terms, interest rates, and eligibility criteria.
Can parents take out loans to help their children with college expenses?
Yes, parents can apply for Parent PLUS loans, which are federal loans available to parents of dependent undergraduate students. These loans can help parents cover the costs not met by other financial aid.
What are Perkins loans, and are they still available to students?
Perkins loans were a federal student loan program for students with exceptional financial needs.
As of September 2021, new Perkins loans are no longer available, but students who received Perkins loans before that date can still benefit from the program.
What is a student loan consolidation, and how can it help simplify loan repayment?
Student loan consolidation is the process of combining multiple student loans into one new loan with a single monthly payment.
This can help students manage their debts more efficiently by extending the repayment period and potentially lowering the monthly payment amount.
However, it’s essential to consider the implications before opting for consolidation.
Student life can be stressful enough with constant exams and assignments, let alone having to worry about your financial situation. If you struggle with your finances, these are the best loan options for you to consider applying for to get you back on track.
Taking out any loan is a huge financial commitment. As a result, we’d strongly recommend asking friends and family for extra support before sending your application to the total number of appropriate loan lenders.
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