Understanding Private Student Loans
Private student loans are not the same as Government student loans.
If you use both of them to fund your postgraduate degree, you might decide you want to spend them in different ways.
To help you make an informed decision, here are a few key terms you’ll want to know when you’re considering private student finance:
When you apply to an independent student finance platform, the agreement you sign on repayments, interest, and how you receive your funds is a different legal document from the one you agree with the Student Loans Company (SLC).
This is because SLC is a public body, whereas these loans are usually offered by private companies.
A term loan is a loan that you repay in regular instalments over a set period of time.1
Interest rates and APR
When you’re paying back a loan, you’ll also pay an interest charge on top, which is calculated as a percentage of the amount of money you borrowed in the first place.
APR stands for ‘Annual Percentage Rate’, and is a number that tells you your interest rate (including other costs) per year of your term.2 Private student finance platforms tend to display their rates in APR, as it makes it easier for you to compare them with other lenders.
Variable and fixed interest rates
Sometimes, an APR will be shown with the word (variable) next to it.
This means the interest rate can change across your term. Other loans are fixed, meaning that they aren’t variable, and so the rate will stay the same throughout the loan term.
Interest rates on all Lendwise loans are fixed giving students greater peace of mind and making it easier to budget your cash flow in advance for repayments.
Repayments begin on a Student Finance England Master’s Loan3 after you finish your studies when you begin to earn over a certain threshold. For the 2019/2020 academic year, this threshold was set at £21,000 a year. Payments are deducted automatically from your payslips.
You repay a private student loan directly. When these repayments begin will vary by provider.
Many private student loan providers require you to start repaying your loan while you’re still studying. If you’re a full-time postgraduate student, you don’t start repayments on a Lendwise loan until after your course has finished. Full details of your repayment schedule will be available in your provisional loan offer as well as your final loan agreement.
Early repayment fees
Some private student finance providers will charge you if you pay back your loan early.
At Lendwise, there are no early repayment fees. You can repay your loan as early as you like. Being a fair loan provider, we don’t want to penalise students for finishing their repayments sooner if they have the ability to do so.
Future earnings potential
Private student finance platforms may factor in your future earnings potential when calculating your loan, something which isn’t done on government loans.
This will tend to be calculated according to the information you supply about your financial background, as well as starting salary data about your subject and institution from third-party sources, such as student employability reports.
Financial Conduct Authority
When you’re taking out any kind of private loan, it’s important you check that the institution or individual you do business with is regulated by the Financial Conduct Authority (FCA).
The FCA runs the Financial Services Register, which details whether the company or person you’re dealing with has official government permission to offer loans and credit. They also operate the Financial Ombudsman Service, through which you can settle any disputes you may have.
If you enter into an arrangement with someone who isn’t regulated, you won’t have the same protections if you get scammed or misled. Lendwise is fully regulated4 by the Financial Conduct Authority.
Everyone who takes out a private student loan will have their own unique reasons for doing so.
If you’ve already begun your studies and find you now need some money to meet the cost of your fees, they can be a great way of ensuring that financial worries don’t interfere with your commitments.
Alternatively, if you’ve been exploring all your options before enrolling, and find you just need a bit more money to reach your funding goals, these loans can be a great way of getting your finances over the finishing line.
If there’s anything you’d like to ask us about private student loans, feel free to get in touch with our Customer Support team. They’ll be there to help you decide whether a Lendwise loan is right for you.
1. Investopedia. 2020. How Term Loans Work. [online] Available at: <https://www.investopedia.com/terms/t/termloan.asp> [Accessed 2 April 2020].
2. S, H., 2020. Interest Rates – APR. [online] MoneySavingExpert.com. Available at: <https://www.moneysavingexpert.com/banking/interest-rates/#APR> [Accessed 2 April 2020].
3. GOV.UK. 2020. Master’s Loan. [online] Available at: <https://www.gov.uk/masters-loan> [Accessed 30 March 2020].
4. Register.fca.org.uk. 2020. Financial Conduct Authority – Lendwise. [online] Available at: <https://register.fca.org.uk/ShPo_FirmDetailsPage?id=001b000003rrNRnAAM> [Accessed 2 April 2020].
5. Which? 2019. Borrowers face early-repayment charges on half of all personal loans. [online] Available at <https://www.which.co.uk/news/article/borrowers-face-early-repayment-charges-on-half-of-all-personal-loans-a6oS10o8Kqaq> [Accessed 2 April 2020]