Loan Terms Explained: All You Need To Know Before Applying
Student loans help millions of people manage the costs of higher education each year[1].
Getting to grips with the variety of different funding options for postgraduate study, from government-backed schemes to private lending, might seem a bit daunting.
But it’s important that before borrowing any money you take some time to research the different options available to you.
The different loan terminology can be confusing and sometimes overcomplicate matters. With that in mind, we’ve put together a quick rundown of some of the most popular buzzwords that you’re likely to come across during the application process.
Credit score
This a rating that lenders use to paint a picture of what type of borrower you are and, ultimately, if you’re likely to meet your repayments. A poor credit score suggests that you have struggled to manage credit in the past which can affect your chances of being accepted for a loan.
Lendwise, which is authorised by the FCA, offers private postgraduate student loans for higher education students. When you make an application through the Lendwise platform, we take an initial snapshot of your credit history that does not affect your credit rating, before offering you a personalised loan proposal.
This is known as a soft credit search, a type of credit check that isn’t visible to other lenders, giving you the freedom to shop around and compare financial products from a range of providers. Some lenders only offer a hard credit search, which can affect your credit score, so be sure to check before applying.
To be accepted for a Lendwise loan, your credit score will have to be free from arrears, defaults and CCJs.
In short, these terms mean that you have struggled to keep up with your payments in the past, leaving a visible footprint on your credit score.
At Lendwise, we are advocates of responsible lending and do not believe it prudent to make additional debt available if you are struggling with managing your existing debts.
Interest rate
This is the cost the lender charges the applicant to borrow its money, expressed as a percentage of the total amount of credit.
Depending on the type of loan this can be a fixed or variable rate. At Lendwise our interest rates are fixed. This can help you with budgeting for repayments as the rate is set and will not fluctuate during the period of the loan.
Some lenders offer variable rates, a type of interest that can change over the course of the repayment period.
Just like the fact that no two individuals are the same, interest rates for Lendwise borrowers are personalised to each individual borrower’s profile. There are a number of factors which will determine your personalised interest rate, including (but no limited to) how well you have managed your past/existing debts, the amount you are borrowing, the amount of your own funds you are contributing to your education as well as your future earnings potential. Our aim is to get a holistic view of the prospective postgraduate student and offer a financing solution that is best suited to their profile.
Repayment schedule
This refers to the amount of time a borrower will have to make repayments and is set out over an agreed period, based on the loan term and the amount of money borrowed.
For full-time students who borrow through Lendwise, your loan repayments will start after your course has ended. You will be able to view the details of your repayment in the loan proposal we offer you before signing an agreement.
Annual percentage rate (APR)
APR shows what it will cost you per year if you settle the loan as outlined in the repayment schedule and takes into account any additional charges of a loan proposal. This can help you compare different funding options to decide what is most suitable for your circumstances.
Although APRs can give you a rough idea of what sort of rate you’re likely to be offered, you won’t be able to find out what your exact APR is until you apply for a loan, unless you get a guaranteed quote from a lender beforehand.
Early repayment charge
This refers to the amount of money a lender may charge if you decide to pay your loan off earlier than the agreed term of the loan. It’s worth checking your loan agreement so that you understand these costs.
Fortunately, if you borrow through Lendwise, you can repay your loan early without incurring any fees. If you repay your loan in a timeframe shorter than the originally agreed loan term, you will only pay the amount of interest which is accrued up until the time your loan is fully paid off.
Financial Conduct Authority (FCA)
The FCA is a regulatory body that enforces rules which govern the UK’s financial services.
Their role is to protect consumers and promote a healthy marketplace between financial service providers. All credit lenders, brokers and peer-to-peer lending platforms must be authorised by the FCA, so look for this accreditation to ensure the product you’re applying for is regulated.
At Lendwise, we are committed to offering student loans that are easy to understand and can be used alongside government schemes or separately from other forms of funding.
[1] Student loan statistics, House of Commons Library, 09 December 2020
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Learn more about a Lendwise postgraduate loan.
Representative Example: Assumed borrowing of £30,825 over 120 months at 12.73% APR representative. Monthly cost of £509.26. Total amount repayable of £61,199.65. Interest rate of 11.62% p.a.(fixed) and total fees of £925.00. Available for loan amounts between £5,000 – £100,000.
(Representative Example date: October 2024)