UK government student finance is specifically designed for those who are studying or training and the interest rates and repayment arrangements of these loans generally reflect this. Other bank, private, payday lending or peer to peer loans (see below) may seem attractive but their terms and conditions such as high interest rates or immediate repayments can make them unsuitable for students.
A credit card is another type of loan which enables you to borrow money which you will have to pay back. Unless you pay off the balance in full every month, you will be charged interest. Although there are some 0% interest and balance transfer offers, there can be hidden charges such as transfer fees as well as high interest rates once the offer period ends.
Peer to peer lending is a relatively new type of loan where investors loan money directly to consumers. Rates for both savers and borrowers can often be better than those offered by traditional banks. Although the industry became regulated by the Financial Conduct Authority (FCA) from 1st April 2014, there are still more risks involved and less consumer protection with this type of loan compared with taking a loan from a bank The moneysupermarket website lists peer to peer lending organisations and outlines the risks you need to be aware of.
What do I need to consider before deciding to take out a loan?
Unless you are eligible for UK government student finance, you should think carefully before deciding to take out any other kind of loan. This is because most lenders will charge high rates of interest and require you to start making immediate repayments which you might struggle to pay from your income.
However, if you feel that you have no other options available and that you need to consider taking a loan, you should first check whether the loan company is authorised by the FCA so you can protect yourself from fraud or other unauthorised activity. The FCA website explains how you can do this and where you can check the register of authorised firms.
Next, make sure you fully understand the terms and conditions of the loan you are offered before you sign any agreement. Try and find out as much information as you can such as:
- when will you need to start making repayments
- how much you need to borrow
- how much in total you will end up repaying
- how much your (minimum) monthly repayments will be
- what the interest rate is and whether this is fixed or variable
- the length of the loan agreement
- the frequency and timing of payments
- whether you can reduce the amount you need to borrow by exploring other sources of funding or reducing your spending
- how you will repay the loan from your future earnings
- at what point in your studies to take the loan – this will depend on your own circumstances; some students may need the money earlier in their studies whereas others may need it later
- what happens if you take longer to complete your studies than originally planned
Contact a Welfare Adviser in the Advice and Counselling Service if you would like some help thinking through these issues before you make a decision about taking out a loan.
I have signed a loan agreement but have changed my mind – what are my options?
If you have signed a loan or credit agreement, under the Consumer Credit Act, you normally have 14 days to withdraw from this agreement. The legislation applies to all credit agreements, whether made in person, on the internet or over the phone. However, if you sign an agreement away from the creditor’s normal business premises such as at your home, your place of work or at an exhibition stand in a shopping centre, you have a shorter cooling off period of 5 days.
Where can I get more advice about cancelling a loan agreement?
You might find it useful to refer to the Citizen’s Advice Bureau (CAB) Borrowing Money webpages. You can also chat online with a CAB adviser about loan or debt issues. The ‘Which’ website also has details about your rights to cancel a loan agreement.
As explained in the Advice and Counselling Service Student Loans and Shariah law webpage, Islamic Sharia law prohibits "Riba", which means the paying and receiving of interest for profit. The prohibition is usually applied to excessive or unreasonable interest, but is sometimes deemed to include the commercial rate of interest paid on a bank overdraft or credit card. Occasionally, even the inflation-only interest that is paid on student loans for undergraduates is seen as Riba, although there are many Islamic scholars who do not see it this way.
The UK government has been exploring the possibility of an alternative finance system available alongside traditional student loans that is not interest based, but results in identical repayments to the conventional system. This funding would be Sharia (Shariah, Shari’ ah) compliant and overseen by a Sharia advisory committee.
The government has indicated that if any alternative finance system is introduced, this would not happen before the 2016/17 academic year. However, at the time of updating this advice guide (May 2019), no further details have been made available.
I’ve already taken out a loan but I can’t afford the repayments – what can I do?
If you already have a loan but you cannot afford to make repayments or you are only making the minimum monthly repayment and being charged interest, contact a Welfare Adviser in the Advice and Counselling Service for advice about your options. Also read the debt section of our website. You might also find it useful to refer to the Arrears notice [PDF 428KB] factsheet published by the FCA which gives advice about options and organisations you can contact if you have fallen behind with agreed loan repayments or have received an arrears notice.
EU/EEA students – unless you have been ordinarily resident in the UK for at least three years before the start of your course, it is unlikely you will be eligible for most types of loan. This is because you will not have accrued sufficient credit history in the UK to enable lenders to assess your suitability for their product. However you may be able to apply for a loan in your home country.
Law, regulations and policies can change quickly. The information on our website is given in good faith and has been carefully checked but QMUL cannot accept responsibility for any errors or omissions. QMUL is not responsible for the content or reliability of the linked websites which are provided for further information.