The Ultimate Guide to Student Payday Loans in the UK
The goal of obtaining a degree and entering into the workforce is one that every young person will eventually consider as they begin to look towards their financial future with career possibilities in mind. However, attending university is not exactly a free process, as there are many expenses that will need to be covered to facilitate graduation.
While general student loans will take care of the cost of tuition and other apparent upfront expenses, it’s common for students to encounter unexpected financial caveats along the way. As a result, student payday loans are currently one of the most popular borrowing options for young adults ranging from ages 18-25 in the UK.
How much would you like to borrow?
Representative Example: Rates from 49.9% APR to max 1333% APR. Minimum Loan Length is 1 month. Maximum Loan Length is 36 months. Representative Example: £250 borrowed for 30 days. Total amount repayable is £310.00. Interest charged is £60.00, annual interest rate of 292% (fixed). Representative 669.35% APR (variable).
In fact, this type of loan has become so popular that you’re probably already considering one for yourself. However, before you rush to compare student payday loan options, it’s important that you’re aware of the borrowing options available to you as well as the key considerations that should be factored into your loan selection. In this straightforward guide, we’ll cover everything you need to know about student payday loans in the UK:
What is a Student Payday Loan?
While the name of this funding type is practically self-explanatory, it’s important to establish the definition of a student payday loan for those who are not familiar with the overall concept of a general payday loan. A payday loan is a form of short-term borrowing in which you pay back the lender on a set date in the near future, typically via an automated withdrawal from your checking account.
The repayment plans are typically divided over a period of 3-18 months, depending on how frequently you’re paid, how much you earn, and the loan amount. Students who do not have jobs can sometimes obtain student payday loans by showing another source of near-future income, or by using their parents as co-applicants.
Examples of Expenses That Student Payday Loans Can Cover
The amount that you can borrow from most student payday lenders in the UK ranges from about £50-£2500, so these online loans can cover the vast majority of financial needs and costs of living that most students will encounter. More specifically, here’s a list of the most common expenses that this kind of loan is used to pay for:
- Tuition Payments – It’s common for the cost of enrolment to exceed the amount that students are able to borrow through a conventional student loan. Likewise, some students utilise financing programs that require ongoing monthly payments. If you’re ever short on your upfront or monthly tuition payments, a student payday loan can help you fill the funding gap.
- Student Loan Repayments – Failure to make student loan repayments on time can have a negative impact on your credit score. If you can’t afford to make your repayment by the payment due date, a payday loan can help you keep your record of perfect financial punctuality intact.
- Housing Costs – The cost of student housing is another expense that many UK students need help with. A payday loan can help you cover the cost of rent or mortgage payments.
- Study Materials – Purchasing the materials needed to complete your courses can create a need for short-term financial assistance. Students often encounter projects or classes in which the instructor calls for materials that become sudden out-of-pocket expenses.
- Additional Fees – It’s also common for university courses to contain practical, lab-based segments which come at an extra cost. Online loans can be used to cover student work lab fees and other optional but recommended admissions processes.
- Transportation – With many students relying on ride share apps and public transit systems, the cost of transportation can add up quickly. If you’re struggling to cover the cost of bus, train, or cab fares, taking out a payday loan can give you enough to get around town for a while.
- Daily Miscellaneous Expenses – Of course, no student wants to be completely broke to the point of not being able to enjoy any of their free time. If you run into a predicament where you’re not able to pay for entertainment, food, clothing, or hygiene products, a payday loan can help you get by and lead a normal and acceptable lifestyle.
- With so many reasons why students apply for this kind of loan, there’s no need to worry about what you’re going to tell the lender when they ask what you need the money for. As long as it’s coverable by the loan amount, you’re free to use the funds as you wish.
Factors That Lenders Consider When Determining Loan Amounts
Unless you can get your parents or a friend who is employed or has good credit to act as a co-signor in your application, you will need to have a job or other source of income to be approved for a payday loan. Your current employment status and proof of income will be the primary considerations examined by student payday lenders.
Generally, most lenders will want to see at least 2 months of documentation that shows how much and how frequently you’re paid. Official bank statements are the preferred method of proof, but some lenders are flexible in what kind of income proof they will accept, so any verifiable proof of employment may be accepted.
Once approved, you can usually choose to split your payments up over 3 months, 6 months, 1 year, or a year and a half. Opting for the shortest repayment period will sometimes provide access to a discounted interest rate. However, choosing a longer repayment period will give you lower monthly payments. So, you’ll need to weigh the pros and cons of each approach and decide which one suits your circumstances.
Can You Get a Student Payday Loan with Bad Credit?
You might have noticed that credit wasn’t one of the factors mentioned in the section above. While it’s true that some payday lenders will conduct cursory credit checks, especially if you’re applying for a larger loan amount, your credit score is never going to be the primary consideration or grounds for denial. In other words, you can have the lowest credit score in the world, but if you have irrefutable proof of long-term income, you should still be approved. For this reason, student payday loans are often the only option left for young adults who have already tarnished their credit profile.
Should You Practice Loan Stacking with Student Payday Loans?
After you’re approved for your first student payday loan, it will usually take at least a couple of days before knowledge of your new loan becomes apparent to other lenders. Some students take advantage of this delay by applying for multiple payday loans on the same day. This is a process known as loan stacking, and it is widely discouraged for any type of borrowing due to the excessive debt burden it can create.
However, it is a hypothetical option for a student who finds themselves in a worst-case scenario – having a job that doesn’t pay enough to secure a sufficient loan amount. In such a situation, where you could only be approved for £200 but you actually need to borrow £600, it’s possible to take out three different payday loans for £200 on the same day.
This is an approach that should be avoided, but one which is certainly possible and doable for desperate students who need the extra funds. Still, if you do take this route, try to only stack a small number of loans that you’ll be able to realistically pay back. Otherwise, you’ll only be setting yourself up for ongoing debt problems.
What to Look for in a Student Payday Loan Lender
In closing, it’s important to realise that not all student payday lenders are the same, and even the exact terms of each individual loan provided by the same lender may vary. Thus, it’s necessary to examine the lender’s reputation and the specific details of the loan itself before you commit to any short-term financial obligations. The primary features you should compare are:
- Available loan amounts – Some lenders will let you borrow a higher percentage of your monthly income than others.
- Repayment flexibility – Look for a lender that lets you choose your own loan payment period.
- Interest rates – Payday loans of all kinds come with relatively high interest rates, but there’s a decent amount of variation between lenders to the extent that a rate comparison is still worthwhile.
- Online reputation – Search for reviews and complaints about prospective lenders before making your selection.
With all of the above in mind, you should be ready to responsibly apply for your first student payday loan, even if it’s for as much as £3000. Remember to be realistic about your ability to repay multiple debts in order to avoid damage to your financial status and credit.