It’s widely known that university students can find it tricky to work with their money. After spending their teenage years living on pocket money from parents, or perhaps a small paycheck from a minimum wage Saturday job, suddenly having two large lump sums placed in the bank account every year can seem like a miracle. It’s common for students to take advantage of the new situation by buying new clothes, going on trips or to festivals – or just bevvying all night in the uni bar! But with those larger sums of money come bigger bills: for the first time, they’re now responsible for managing rent, bills and food. It’s no wonder that many fill the gap between student loans deposits with unsecured loans, taking advantage of a cash advance to tide them over until the next lump sum arrives.
Unsecured loans are a form of loan designed for people who know – and can prove – that they’ll be getting enough cash to pay back the loan by a given date (usually next payday, or for students, the date of the loan deposit). They differ from secure loans because there’s no need for collateral: for most loans made by a bank, the loaner makes sure they’ll get their money back by having the borrower sign a contract agreeing to give something worth more than the loan – usually his or her house – if the money isn’t returned. A loan that isn’t ‘secured’ refers to a loan without a contract of this kind: instead, a slightly larger of interest is accumulated on the loan, and it is paid back with the next paycheck or lump sum received by the borrower.
This type of loan appeals to students for many reasons. First of all, they know with certainty that they’ll be receiving an SLC loan installment by a given date, and so don’t have to worry, like many borrowers, about the interest accumulating to unmanageable levels. Secondly, students are usually not eligible for secured loans, because none of them (or very few!) have a house or small business to ‘put up’ as collateral to backvalidate a secured loan. Unsecured loans aren’t intended – like a mortgage, for instance – to be something that you pay back gradually over years. They are used as a ‘stopgap’ to provide money which the student wouldn’t otherwise get until a certain date. For instance: if a student loans payment is due on the 5th of the month, but rent has to be paid on the 1st – and too much cash has been frittered on nights out! – this type of loan can give the student a cash advance, which the student will be able to give back as soon as the 5th of the month comes round. This system has been found to give many students peace of mind, at the most difficult times.
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