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Graduate Loans

Graduate loans work in the same way as unsecured personal loans. However, banks often offer better loan rates for graduates. You will normally have to hold a current account with the same provider to get 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 up to £25K. Graduate loans are repayable over a period of time, usually between six months and 10 years.

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Lenders 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). Any firm that lends money is required by law to quote the APR. The advertised typical APR quoted needs to be offered to 66% of borrowers.

The APR usually depends on the amount of the graduate loan and sometimes the term as well. This means the best rate for one graduate loan amount may not be the best rate on all. Some lenders however do offer the same rate to all their borrowers. You need to check the best rate dependent on the amount and term you are after.

Graduate loans - things to consider:

• Typical APR
  You may not always get the advertised typical APR on a graduate loan. The rate you are given can depend on your credit rating. This is a scoring system that lenders give people with to determine how credit worthy they are.
• Graduate loan early settlement penalties
  Paying off your graduate loan early can save you hundreds of pounds in interest. However, some graduate loans apply penalties to those wishing to close their graduate loans before the end of the term. This applies to fixed-sum loans taken out on or after 31 May 2005 and that are regulated by the Consumer Credit Act 1974. If the graduate loan is paid off early, the lender may charge a penalty (subject to a set formula) of 30 days or one calendar month. This applies when the original loan term is more than one year and the advance is £25,000 or less. For terms of one year or less, no redemption penalty is payable. This penalty is set out in the rules governing repaying loans early and is covered by the Consumer Credit (Early Settlement) Regulations 2004.Graduate loans taken out before this date may have higher penalties. If you are refinancing you should take this penalty into consideration when working out any.
• Graduate loan deferment Periods and payment breaks
  Many lenders will allow a break between when you receive your loan and when the first payment needs to be made, beyond the standard month. While this gives you a break from payments, interest is charged over this period which actually increases the total interest payable. Lenders also offer breaks during the loan term, but again interest is charged on the amount not paid. This means a larger loan amount is left unpaid for longer. These breaks may incur charges.
• Graduate loans same Day Funds
  Some lenders offer same-day-funds facility which means you get your money on the same day that you complete the application. There is usually a fee for this service which can be as high as £50, so consider this carefully.
• Direct Debits
  Most lenders need a direct debit to pay the monthly instalments on your graduate loan. You need to ensure your bank account can accept these and ensure that the money is available for payments. Penalty charges for missed payments can be as high as £38.
• Payment Protection Insurance for graduate loans
  This is an optional insurance that will cover your repayments should you be unable to work under certain circumstances and can include:
  • Unemployment
  • Accident
  • Sickness
  • Death.
• It is important to check the small print to ensure the cover provided is suitable for your needs.
• Insurance Providers
  Insurance is always provided by the lender, but can also come from a standalone broker. With a standalone provider you can be assured that the insurance has not been added to your loan and interest charged on the resulting balance, as happens with some lenders’ insurance.
• Other reasons for taking PPI from a direct provider rather than your lender are:
  • With direct cover you can pay the premium separately as a direct debit from your current account with no interest charge and you are free to cancel it when you wish without any financial penalty.
  • If you repay your graduate loan early you will not receive a pro-rata refund on your insurance premium, as the premiums are front-loaded; in fact if you repaid a five-year loan after four years, the refund you would receive would be negligible.
  • There is no pressure to take out standalone PPI; you are in the perfect position to know your financial position and job security and can choose the type of cover that you feel best meets your circumstances.
  • The cover doesn’t have to be taken out at the start of the graduate loan.