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Launching your career in a new city?
Putting a deposit down on your first flat?
Finally replacing that old car you’ve had since your student days?
Having some extra cash in the bank can make a world of difference when you’re fresh out of university. But for many of us, those student savings we scraped together will only go so far.
Cue graduate loans.
Designed specifically for graduates who might’ve never taken out a loan before, this beginner-friendly borrowing option can help you to kickstart your post-study finances - even if you lack credit history. As well as providing the money you need now, it can be a great opportunity to start building your credit score.
That said, taking out a loan after graduation isn’t always the right move. As with any borrowing, it’s important to weigh up some key considerations first.
Below, we explain what a graduate loan is, who it’s for and how to apply. Keep reading to see if this financial support is a smart choice for your next step.
A graduate loan is an unsecured personal loan that is structured for people who have recently left university.
With no collateral to worry about, you don’t have to be a homeowner - a big bonus for younger borrowers who’ve yet to get on the property ladder.
And thanks to more accessible terms like lower interest rates (depending on your circumstances), it’s much easier for entry-level workers to keep up with repayments.
A graduate loan can be used to cover all sorts of costs, including your:
While what you spend this extra cash on is ultimately your call, you should only take out a graduate loan for essential expenses.
An overseas adventure or luxury shopping spree might be tempting after all those exams, but a loan is a major financial commitment that you need to stay on top of - debt can spiral all too easily, especially if you fall behind on repayments.
Our advice? Only borrow what you genuinely need, and save up for any nice-to-haves.
Loans for graduates work like any other personal loan, with one fixed repayment required every month for a specified length of time.
When applying for this loan, you’ll need to choose how much you want to borrow and how long you’d like to make repayments for. This is known as the loan term, and typically lasts about one to five years.
As a general rule of thumb, taking out a loan for the lowest amount necessary over the shortest time frame will help to minimise your borrowing costs. While longer loan terms might reduce monthly repayments, you could end up paying more in total interest.
Remember that a graduate loan is unsecured, so lenders face more risk because there’s no asset to back your borrowing if you can’t repay it. That’s why they’ll review your financial situation before agreeing to lend you any money.
Assessing your eligibility and level of risk will help lenders to work out whether or not to approve you - and if so, at what interest rate. More on this below.
If you get the green light, the lender will pay a lump sum directly into your bank account for you to spend whenever and however you like. What’s most important is that you make the fixed monthly repayments on time and in full until you’ve settled up.
As mentioned above, your monthly repayment will include interest and lender fees. This cost of borrowing is known as the Annual Percentage Rate (APR).
Each lender will promote a Representative APR. At least 51% of customers have received this rate or lower. That said, the interest rate you secure could be higher or lower than this APR. It all depends on your personal situation and how well you’ve managed previous debt.
Long story short, the riskier you’re perceived to be to lenders, the higher the APR.
Broadly speaking, graduate loan interest rates are usually fixed and lower than those for other personal loans. As well as helping you to budget ahead, this can make borrowing more affordable - in turn reducing the risk of defaulting on repayments.
No graduate loan is a free handout. That’s why it’s so essential to budget for your monthly repayments and make sure they’ll be feasible in the future - even if other expenses, like your energy bill, were to increase.
So, before you borrow, consider how you’re going to pay back the loan. Will you be earning enough to make the repayments, while still covering your living costs?
Don’t forget that once you start earning over the threshold, you’re going to have to repay your student loan, too - a payment that’s taken automatically from your salary. You’ll need to account for this when working out how much you can afford to repay down the line.
As personal loans for recent graduates are structured to help people who’ve recently come out of university, you might not be able to borrow quite as much as with an unsecured loan.
That’s where Open Banking comes in handy.
Read on to discover how it can help you to borrow more affordably after university.
With Open Banking, safe and secure technology gives approved third-party providers the ability to view your personal banking information. Things like ingoing and outgoing payments are all visible with your permission, including:
For graduates with little to no credit history, these insights can be game changing.
Essentially, you’re able to share your financial details with certain lenders with the aim of securing more favourable borrowing terms.
By checking out your transactions, these lenders can consider so much more than your credit score or lack thereof. With a full understanding of your finances, it’s easier to work out how much you can afford to borrow and personalise terms accordingly.
As well as boosting your chances of being approved for a loan, this approach could mean a lower interest rate compared to traditional alternatives. Not bad.
Want to apply for a personal loan with Abound? To be eligible, you’ll need to be:
From there, it all comes down to your unique circumstances. We’ll use Open Banking technology to deep dive into your personal banking information and determine whether or not you’re pocketing enough money each month to repay the loan comfortably.
You’ll be required to make a repayment every month until your loan term wraps up. This payment will include a portion of the total amount you borrowed, along with interest and any lender fees.
Failing to meet the repayments on your graduate loan each month can have significant consequences on your future ability to borrow. If you plan to get a mortgage for your first house, it’s essential that you stay on top of these repayments.
If you worry that you won’t be able to afford a repayment from time to time, you might be able to take a ‘repayment holiday’. This temporary pause in repayments is only available with some lenders, who will usually allow a set amount per year to ease the stress.
Bear in mind that, as well as paying a fee for this break, you’ll still be charged interest throughout, which will add to your overall debt.
Importantly, you need to notify the lender if you intend to take a repayment holiday. Otherwise, the missed payment will be considered as arrears and likely reported by the lender to Credit Reference Agencies.
Here are some more options to consider if you need some financial help after graduation.
You can spend on a 0% credit card without accruing any interest for a certain amount of time. If you repay the full amount borrowed before this introductory period comes to an end, you won’t have to fork out any interest.
This might sound like a no brainer, but beware.
Credit cards can be a very slippery slope, especially for struggling graduates who are just starting out after university. With a line of credit at your disposal, a low salary and lots of costs to cover, it can be easy to get in over your head with debt.
And if you exceed your credit limit (the maximum amount you can spend with your card) or miss a repayment, you’ll be harming your credit history from the get go.
Postgraduates can apply for a loan from the Student Loans Company (SLC) if they’re completing a Masters degree in any subject. This extra cash can fund your course fees and/or living expenses. And you’ll only need to start making repayments once you earn over a certain threshold.
The amount you can borrow depends on when your course started:
Crucially, these are personal loans for graduate students. So while they can be a solid option for anyone taking on further studies, you won’t be eligible if you’re entering the workforce instead of doing a Masters.
Ready to get your finances back on track after university?
Discover graduate loans of up to £10,000 with Abound.
We make the most of Open Banking to understand your full financial situation. For graduates with thin credit histories, this can mean a more practical repayment term and potentially even a lower interest rate.
Once approved, we’ll get you the money in as little as one day. Then pay it back in fixed monthly installments you can actually afford.
See how much you could borrow and at what rate with our free online calculator.