Loans for Students with Bad Credit

Updated: May 14, 2024 Author:

key Takeaways: Student loans may feel like a necessity. Particularly if your maintenance loans are insufficient to cover the cost of living where you study. When your maintenance loans don’t cover your essential living costs, speak with your student services dept. as they may be able to provide hardship funds. If they can’t, subprime lenders can assist. The most affordable will be secured loans or guarantor loans as those lessen the risk to lenders. The higher the risk a lender assesses your application to be, the higher an interest rate they charge. That can make it difficult satisfying the affordability assessment lenders to to ensure you can afford to repay the loan.

Student finances can be tricky – in 2023, students reported that their student loans were almost £600 short of covering their living costs each month. With an increasing cost of living and little time for work, you may be wondering whether you can get a loan. Without a good credit history, it can be difficult to get approved for a loan. This could happen if you’ve found it difficult to repay your credit in the past, or if you’ve never taken out credit before.

Will I Get a Student Loan with Bad Credit?

First, it’s important to understand the difference between a student loan from the government and a regular loan. In the UK, if you’re studying an undergraduate or postgraduate degree for the first time, it’s likely you’ll be eligible for a student loan to help you cover your living costs and tuition fees.

This student loan is different from most loan types; there is no credit check required, and it does not impact your credit history. There is no minimum credit score for a UK government student loan. This means you can still take out a student loan if you have bad credit, and having a student loan won’t hurt your credit score. The amount you get as maintenance loans is based on where you live, not where you study. For that reason, students from Northern Ireland can find they get less financial support when studying in mainland UK than their peers. When that’s the case, finding NI loans for bad credit can seem like the logical choice. Whatever type of loan you need, having a poor/low credit score can be disadvantageous by pushing interest rates up and blockading access to mainstream borrowing options.

Loans for Students with No Income

It’s important you know how you’re going to repay your loan before you take one out. Loans are usually arranged with monthly repayments, which could be difficult to keep up with if you have no current income.

It may be tempting to repay the loan with the next instalment of your maintenance loan, but you may incur early repayment fees if you pay it off ahead of schedule. If you are waiting longer than a month, you may also incur late fees in the meantime.

You also risk having to do the same thing before your next instalment if you aren’t able to budget for the loan repayment. If you do know how you’ll make monthly repayments but you’re limited by poor credit history, there are a few loans you could consider.

Guarantor Loans

If you have a poor or no credit history and low to no income, you may find it particularly difficult to get approved for another loan.

One option could be a guarantor loan.

When you take out a guarantor loan, another person signs on to repay the loan if you can’t. Your guarantor should have a good credit history, and should be someone you can talk openly about your finances with. 

They take on responsibility for your loan, so their credit rating can be impacted if neither of you are able to make repayments.

They could be a parent, family member, or friend, and sometimes, the lender will stipulate that they only accept guarantors with a separate bank account ruling out out spouses with a joint bank account.

Guarantor loans typically have lower interest rates, since your guarantor mitigates the risk to the lender.

Secured Loans for Students

If you don’t have a guarantor, you could look into secured loans. These are loans taken out using an asset you own as collateral in case you don’t repay. This could be property, a vehicle, or another high-value asset like jewellery or technology.

However, you should think carefully before taking out this kind of loan; you risk losing your possessions if you aren’t able to repay it on time.

While secured loans can offer lower interest rates than other types of loan, losing your home, vehicle, or tech might significantly affect your studies.

Can I Get a Payday Loan if I’m a Student?

If you just need a little extra cash to get you through to your next student loan instalment, you may be curious about payday loans.

Payday loans from direct lenders – that is, lenders that aren’t associated with banks – are usually small, short-term loans that you pay back on “payday”.

If you’re considering taking out any kind of loan from a direct lender, make sure they’re regulated by The Financial Conduct Authority. This ensures they are following an ethical code of conduct and acting in your best interests.

Although they can be convenient, payday loans are usually not advisable if you have other options because they typically have the highest interest rates and late repayment fees, and can damage your credit score even further if you can’t meet the high cost of repaying them in full on time. 

Taking out a payday loan will show on your credit file and that can give lenders the impression that you find it difficult to manage your finances. This is why they can make it even harder to get a loan in the future – even if you pay back on time. 

Can I Get a Student Overdraft with Bad Credit?

You may be able to get a bank account with an interest-free student overdraft. While this is a great deal while you’re studying, it’s important to understand the terms and conditions of your loan.

Student overdrafts are usually only interest-free until you’ve finished your degree, or for a short period of time afterwards. Therefore, it’s still important to know how you plan to repay this loan.

The time you’ll have to repay before taking on interest fees, and how high your fees will be, will be outlined in your overdraft agreement.

Like all lenders, banks will still do credit checks before offering you an overdraft – so you may still find it difficult to get approved. However, as these are specifically for students, they may take your circumstances into account.

If you’ve already used all of your student overdraft, you can ask the bank for an extension. If approved, remember that you will still need to pay back everything that you take out.

Alternative Financial Support Options for Students

If you’re having financial difficulties while studying, your university may be able to offer you support. 

With 82% of students worried about making ends meet, universities are used to supporting students with financial concerns. They usually have advisors on hand to help, and many offer financial hardship funding for those facing the most difficulty.

The best way to manage your finances is always by budgeting, rather than taking on debt. You may wish to consider working part-time or freelance, making use of student deals, and seeing if you can cut any of your expenses.

If you do find that taking on credit is your best option, think carefully about which type of loan is the best option for you in the longer term.