YTYP UG

Choose the right financial products for you

From student bank accounts to credit cards, here's how to look after your finances.

Becoming a student might be the first time you've dealt with banks and other financial institutions, and it can be a bit daunting. Here's our guide to managing financial products like bank accounts, overdrafts and credit cards.

 

 

Student bank accounts

It's important that you find the right student bank account for you. Shop around, and read the small print, and look out for hidden costs like unauthorised overdraft and interest fees. The Money Saving Expert website has helpful comparisons of different student bank accounts.

Using an app to to check your balance regularly, and setting aside money into pots and savings accounts, can help you spread your student loan and wages through the month.

Keep an eye on your overdraft

An interest-free overdraft facility can act as a buffer if you get into difficulty. Check how much is on offer and what charges apply if you go over the limit (rates vary from bank to bank). Banks are generally happy to offer this service but make sure you don't exceed your limit. Also check what happens to your bank account when you graduate to avoid any unnecessary charges.

Speak to your bank if you think you are go over your overdraft limit, they may be able to increase your overdraft or give you a temporary extension. This could save you a lot of money on fees and high interest rates.

Ensure you're sent monthly statements or go green and access them through the internet. Regularly checking your statements will help you to track your budget and financial situation along with checking for any unusual transactions.

 

 

Borrowing money

It's best to avoid borrowing money other than your student loan, as the costs add up. If you do borrow money, you should be careful to think through how and when you'll be able to pay it back. There are several types of borrowing you might come across:

Types of borrowing

Overdrafts

Overdrafts are the most common type of borrowing that students use. A bank overdraft is linked to your current account. It allows you to withdraw more money than you have in your account.

You can arrange a limit with your bank in advance, and it's important that you keep within this limit. Banks will usually charge very high fees if you go over the limit, and they build up quickly.

Credit cards and Buy Now Pay Later

Credit cards and "Buy now pay later" options like Klarna, allow you to borrow money to buy products now. You pay the company back later, and there is normally a minimum monthly repayment, with often interest applied to the balance. You will be given a limit by the company which is the maximum you can borrow. If you go over this limit or miss your payments you will have to pay extra charges.

Personal loans

Most banks offer personal loans which you pay back over a fixed term of one to seven years. Repayments are usually monthly and are paid by direct debit. The interest can vary depending on your individual circumstances.

Things to be aware of

Borrowing fees

Whatever credit you take out will normally mean you have to pay back more than you borrowed (except for interest-free options such as student overdrafts). The costs will vary from lender to lender, so it is important to shop around and make sure you can afford the repayments.

The interest rate describes how much more you have to pay back than you borrowed. Normally interest is described as a percentage of the amount borrowed.

Annual Percentage Rate (APR)

All lenders have to tell you the APR of any product they are offering, so you can compare different lenders' rates fairly. The APR tells you the overall cost of the product for a year. The APR takes into account the interest charged plus any charges or fees you have to pay and also the frequency and timing of repayments.

You can use APRs to compare the real cost of different credit and loan offers, although it works best if you are comparing similar types of credit over the same time period. In general, the lower the APR the cheaper the deal. Your lender must tell you the APR on a loan or credit deal before you sign up.

 

 

Credit score

Everyone has a credit record, which sets out your history of how much you've borrowed in the past, when you've repaid it, and more information about you. 

When you apply for credit - for example a credit card or a mortgage on a house - you will be 'scored' by the lender. This helps them predict your future behaviour and will help them decide if they will lend you money or not and, set your credit limit and the interest rate they offer you.

A bad credit profile could even potentially have an impact on your career, as certain types of job need you to have a credit check. 

What affects your credit score

Lenders will look at the last six years, and how you've managed money that you've borrowed. 

If you have a credit card, for example, this will be on your profile – and it will show if you have missed any monthly payments or paid them late. If you have a mobile phone contract, your monthly mobile payments will be displayed, and some utility companies share information on whether you are paying your bills on time. 

How to check your credit score

There are several main credit reference agencies, such as Equifax and Experian, to whom you can pay a small fee to check your profile. You may be able to get a free trial when you first sign up - but remember to cancel before the free trial ends to avoid a monthly fee.

It's worth checking your credit record once a year to make sure the information held about you is correct, and it is also a useful tool to check for identity fraud.

How to improve your credit score

If you have a bad, poor or average credit score there are a number ways you can improve it.

Look at doing the following:

  • Get yourself on the electoral role - you're less likely to get approved for credit if you’re not registered to vote.
  • Make sure you don’t miss any payments and make sure you pay on time
  • Don’t apply for too much credit in a short space of time
  • Don’t withdraw cash from your credit card

 

 

Borrowing money from bad sources

As well as the more reputable sources like high street banks and lenders, you should be wary of companies and illegal money lenders offering you what seem like quick fixes but can leave you with bigger money problems. Two to be wary of are payday loans and loan sharks.

Payday loans

Payday loans are short-term, small loans which charge very high interest rates. These types of loans are readily available online and on the high street.

You are normally given a month to repay the loan, although some companies will arrange to take repayment on the day your next loan instalment is paid. In most cases the loan company will automatically debit your bank account for the payment on an agreed date. If you have no money in your account they will continually attempt to take it, which may cause you to be charged by your bank.

Unfortunately, we have seen more and more students resort to payday loans as these type of lenders target students with information on their products. This can seem like an attractive short-term fix and an easy source of extra cash but they can be very expensive, particularly if you miss a repayment date. Avoid this type of borrowing and look at other options that may be more appropriate.

Loan sharks

Loan sharks are illegal money lenders, with no lending licence, who will loan you money and who often target desperate people.

Loan sharks will seem friendly when they meet you. However they charge extremely high interest rates to deliberately make it difficult for you to keep up the repayments and you could easily end up owing them many times the amount you borrowed. 

Often, these people won’t advertise themselves as money lenders, they may be introduced to you through a friend of a friend or they may even overhear you chatting in the pub and offer to lend you the money. They will come across as friendly but beware of the consequences. They won’t give you any paperwork, a fixed interest rate or any receipts of repayments and if you fall behind with your payments then you may experience some form of violence against you. You will end up paying back more than you can imagine. They may even take your personal belongings for security such as your passports, bank cards or driving licences.

Avoid loan sharks at all costs. If you need additional financial support then come to the Student Finance Centre. We have hardship funds available depending on your circumstances.

Dealing with debt

Getting into debt can be very stressful and you may not feel comfortable speaking to family or friends about it. We have trained financial advisers who can give you confidential information, advice and guidance on debt-related issues.

Our approach is straightforward – we aim to get you back on track and in control of your finances. Whatever your situation, we'll listen to you and provide impartial and non-judgemental debt advice. If we can't help, we'll point you in the direction of someone who can.

 

 

Finishing your course

Although your bank will usually automatically change your account once you have finished your course it's important that you shop around to get the best deal you can.

You may still be able to get an interest free overdraft as a graduate; this will normally be available for two to three years while you pay it off. Once you know what you will be earning and where you will be living, set a monthly budget and put aside some money each month to reduce your overdraft gradually.

If your bank offers you a loan to clear your overdraft make sure that you are not paying more interest and that you can make the payments every month.

For the current best deals and some useful advice on choosing an account make sure you shop around.

Get help with managing your money

The Student Finance Centre offers information, advice and guidance on managing your money, including making sure you’re getting the right support from your student funding body, and benefits you're eligible for. We also give out grants to students facing financial difficulties, which you don't need to pay back. Contact us via: