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If you are a student or a young person just starting out in life, there are going to be times when you need some extra money – perhaps to buy a car or to get the deposit together to rent your first home. Borrowing money is perfectly safe and a sensible thing to do if you are confident that the repayments are not going to become unaffordable if your circumstances change at some point.
When you are considering borrowing money, make sure that you do a full budget of all your existing income and expenditure. If the repayments on the loan or credit card you are considering are then added to this budget, it will quickly be apparent whether the borrowing is affordable or not.
Don’t be tempted to delude yourself with your budget. Be realistic about your outgoings and include everything from your food shopping to nights out at the pub. All of these add up and can quickly make any further expenditure unaffordable if you don’t take them into account before you decide to borrow
If you are a young person or a student, then there are plenty of loan options available to you. If you don’t already have a student loan, then this will be the cheapest option over the short term because you won’t start paying it back until you’re in a job earning more than a certain amount each year. But student loans – particularly when you borrow the full amount of £27,000 – can saddle you with years of debt which may be unwise if you only want to borrow a smaller amount.
Most of the major and online lenders have a variety of loans for younger people. If you go to your bank, then you will be borrowing a fixed amount, at a certain interest rate with a fixed period to repay. You can use a personal loan to finance a car, pay for accommodation or even to fund your course. But be clear about how much you need to borrow and how much you can afford to repay each month. Don’t overstretch yourself just because the lender is willing to offer you much more than you actually need.
Make sure that you stick to the repayment schedule because things can quickly become difficulty if you don’t. A slip up will be a breach of your terms and conditions and the bank or lender will notify the credit reference agencies, impose penalties or extra interest on you or even take you to court to recover the debt.
Make sure you shop around and get the lowest available interest rate to limit the total amount you have to repay and your monthly payments.
Many young people have problems with their credit rating. This is partly due to irresponsible borrowing or, more likely, because they are not on the electoral roll or have never borrowed money before. In either circumstance, you may struggle to get a loan from a traditional lender.
But is by no means the end of the road. There are many lenders – particularly online – who will be willing to consider an application from a young person if they have an impaired credit record. You’ll find that even if you have a county court judgement (CCJ), there are still plenty of financial organisations who may lend you the money you want.
Beware, though, that a poor credit rating will mean that you will have to pay higher interest rates and only have access to lower loan amounts. The best interest rates are usually available to people with good or excellent credit records.
The first thing to do to improve your credit rating is to make sure you are on the electoral roll. You can do this online or through your local authority. The electoral roll is the first thing that a lender will look at so, if you are not on it, you’re likely to face rejection after rejection.
Don’t be tempted to employ the scattergun approach to applying for credit in the hope that one lender somewhere will approve you. This will result in many searches registered on your record and will actually impair your chances further.
Instead, consider using a lender’s pre-eligibility check (often called a “soft search”) or one from a financial comparison site which will give you a good degree of certainty over who will lend you the money you want and how much.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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