A personal loan gives you access to additional capital that you can use for any expense. While personal loans are convenient, many lenders have requirements that revolve around your credit score, income, and other factors. If you are a student looking for extra money, these requirements can seem daunting. However, it’s possible for a student to get a personal loan and then use this financial product to unlock more opportunities in the future.
What are personal loans for students?
A personal loan for students is a financial product that helps students cover expenses for their education. If you don’t have enough cash to buy textbooks, school supplies, transportation, and other necessary expenses, these loans can help. You can even use one of these personal loans to address tuition fees along with your student loans.
A big advantage of some personal loans is that you don’t have to put up any collateral. Collateral is an asset that you must give to the bank if you cannot repay the loan. For instance, mortgages use your home as collateral. That’s why banks obtain a borrower’s home if the borrower stops making loan payments. Personal loans do not require collateral since they are unsecured loans.
You can find personal loans for students at many banks, credit unions, and online lenders. You will have to compare loan offers to find one with the best rates, terms, and requirements.
How do personal loans for students work?
Personal loans give you an upfront payment that you must repay over monthly installments. Your terms and interest rate impact your monthly payment. These proceeds can only help with educational expenses. Students must provide necessary documents, such as their ID, to receive a personal loan. The student’s credit score plays a big role in the loan’s interest rate and terms.
Why taking out a personal loan for students is a good idea
Taking out a personal loan can be a great move that gives you extra cash within a short amount of time. These are some of the perks of taking out a personal loan to cover your educational expenses.
1. Access to funds
Students receive a lump sum of money if they get approved for the loan. Some lenders give loans to borrowers within 24 hours of getting approved which helps with urgent expenses.
2. No collateral required
Unsecured loans, like personal loans, do not involve collateral. Since you are not putting up collateral, you minimize your risk in the event you fall behind on monthly payments. The best way to eliminate risk and stay on top of any debt is to make on-time loan payments. The lack of a collateral requirement can also help students who do not have as many assets that they can use as collateral.
3. Flexible repayment options
Borrowers can choose from multiple term lengths. Shorter loan terms result in higher monthly payments, while lengthier loan terms reduce your monthly payments. Borrowers can also opt to make interest-only payments in the beginning, defer payments, or take on another flexible repayment schedule.
5. Build credit
Taking out a personal loan could affect your credit mix, and on-time payments may strengthen your payment history. Payment history is the largest portion of your FICO score, making up 35% of your total credit. Credit mix makes up an additional 10% of your credit score. Establishing a positive credit history can help you qualify for better financial opportunities, such as higher loan amounts and lower interest rates.
6. Competitive interest rates
Students can shop around at banks, credit unions, and online lenders to find personal loans with competitive interest rates. Students with good credit scores or cosigners with good credit histories can secure better financing from these loans.
MoneyLion can help you find personal loan offers based on your background and the info you provide. You can get matched with offers for up to $50,000 from top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.
How to choose a personal loan as a student?
Students can choose from several lenders and loan offers. These are some of the factors to consider when assessing personal loan options.
Step 1: Determine your financial needs
Reviewing your finances can help you determine how much money you need from a lender. Requesting a smaller loan can increase your likelihood of getting approved and result in lower interest. You should also determine how you want to use the funds before applying for personal loans.
Step 2: Research different lenders and loan options
Students should review terms, interest rates, repayment options, and eligibility criteria when comparing lenders. Comparing lenders instead of getting a loan from the first lender you find can help you secure a lower interest rate and better terms. As you review multiple loan offers, you will discover what to expect from a good loan offer.
Step 3: Assess your eligibility
Not everyone is eligible for a lender’s financial product. Students should look for personal loans with more generous requirements that they can achieve. However, you should be wary of predatory loans like payday loans that have very few requirements. These loans often come with excessive fees and interest rates.
Step 4: Read and understand the loan terms and conditions
It’s always good to double-check the loan terms and conditions before signing your name on the important paperwork. Students should review repayment options, fees, term length, and other factors. If you feel good about the offer, you can proceed and receive the cash you seek.
How to manage personal loans as a student
A personal loan gives you the extra funds you need to cover educational expenses and any other costs. However, you have to stay on top of the monthly loan payments. These strategies can make your personal loan more manageable.
1. Pay on time
It is essential to make on-time payments for your loan. Paying promptly will help you avoid fees and help lead to a higher credit score. Making more than the minimum monthly payment can help you get out of debt faster by reducing the principal.
2. Use automatic payments
You don’t have to remember to stay on top of your loan payments if you use automatic payments. Money from your checking account will automatically go toward your loan. You should still monitor your finances and make sure you have enough funds to support automatic payments. However, it can take some of the pressure off and help preserve your credit score.
Alternatives to personal loans for students
Personal loans give you extra money when you need it, but they’re not the only option for funding. Students can use these alternatives to get the cash they need for educational expenses.
1. Borrow from family or friends
Requesting money from family or friends can help you avoid wait times, fees, and interest payments. Just make sure you pay someone back if you borrow money from them.
2. Credit builder loans
A credit builder loan gives you access to some cash and could have low monthly payments. These loans are primarily for people with bad credit or no credit history. If you need to borrow money, make sure you choose a credit builder loan that offers an upfront payment. Some credit builder loans require a security deposit equal to the loan’s amount. While those loans make it easier for people to build credit, they do not give you immediate money to cover educational expenses.
3. Part-time job opportunities
Part-time job opportunities give you work experience and a steady paycheck. This job makes your income more predictable and makes you less reliant on a lender approving your request for a loan. If you pursue side hustles, you can work as much or as little as you like. This flexibility allows you to capitalize on less busy school days and slow down the side hustling when midterms or final exams arrive.
Start Making Money as a Student
Expenses will come up during your time in college. You may need to get textbooks, pay for transportation, and address other costs. Getting a personal loan can give you the extra money you need. Seeking part-time work and side hustle opportunities can also help and give you the cash you need to pay off your loan. Monitoring your finances can help you pay off debt when you borrow money.
Can students with no income apply for personal loans?
Students with no income can apply for personal loans. They will have fewer choices, but some lenders offer financial products for them.
Can students with bad credit history still get approved for a personal loan?
Students with bad credit history could still get approved for personal loans. Students should look for lenders with more generous requirements.
How long does it take to process a personal loan application for students?
This depends on the lender, some can be processed within a day while other lenders could take up to a week or longer.