Debt & Borrowing Money

You don’t have to take the student loan, or you can elect to take less than the full amount available to you. It does make up the majority of your support package though, so you should think carefully about how you are going to get by without it.

You can use our range of Budgeting and Planning web resources to help you work out what financial support you will need to support yourself while you study. 

The Student Loans Company (SLC) is a UK public sector organisation, administering student funding schemes on behalf of the government.

Unlike other forms of credit, the student loan does not have an interest rate that is designed to make the Student Loans Company money. Instead, the rate of interest is linked to inflation, making it much cheaper than commercial alternatives (like bank loans, credits cards etc.).

How much you repay depends on the type of repayment plan you are on (it can be different depending on where in the UK you are from), when you start repaying, and how much you repay. 

You do not have to start paying back your loan until the April after you graduate or leave the course. At that point, you become liable, but you do not repay anything until your income is over a set threshold.

Currently, that threshold is £31395 (Scottish), £24990 (Northern Irish) and £27295 (Welsh). In England the rates are split, it will be £27295 if you started your studies prior to August 2023 and £25000 if you began after August 1^st 2023.

Your repayments will stop if you stop working or your income drops below these levels.

Unlike commercial credit, you won’t have to repay your loan over a fixed period. When you are earning above the threshold, your repayment amount will be based on your earnings. Someone earning £32K a year will pay back much less each month than someone earning £55K a year.

You pay 9% of your income over the threshold (6% in the case of the English Postgraduate Loan).

For example, if you are Scottish and earn £35K a year, take away the £31,395 threshold and you pay 9% of £3,605, which is £324.45 for the year, or £27.04 per month.

If you are Scottish and earn £45k a year, take away the £31,395 threshold and you pay 9% of £13,605, which is £1,224.45 for the year, or £102.04 per month.

The SLC works with HMRC to collect your payments from your salary, in the same way that you pay tax and national insurance. If you are self-employed, HMRC will collect payments through the self-assessment system.

You can make extra payments direct to the SLC if you want, but remember to think carefully before doing so. If you have others forms of credit, e.g. a mortgage or car loan, you are always best to pay off the most expensive debt first, which is almost never your student loan.

It’s quite simple really – if you don’t earn above the threshold, you are not expected to make repayments. This is the case even if you have been making repayments but your income falls. For example, if you have been working and making payments, but take time away from employment to have a family, you would not be expected to make any repayments.

The student loan, unlike other forms of credit, will not affect your credit rating. It won’t show up on any credit check.

You can find out more about credit ratings in the sections below.

No. There is a period of liability that starts the April after you graduate or leave the course. That period of liability begins whether you are in the position f making repayments or not.

This period of liability ends after 30 years for Scottish students.

Students from Northern Ireland, Wales or England will have either a 25, 30 or 40 year period of liability, depending on when they started studies, so please do read the government information about student loan repayments here.

If you never earn above the threshold, or don’t pay it all back within the period of liability, any outstanding amount is simply written-off.

Being a student doesn’t mean you are exempt from the normal costs of living that many people face, but being a student might give you access to preferential rates where you absolutely need to borrow money, such as an interest free overdrafts*.

It’s always best not to borrow when you can avoid it and the section below can help you make this assessment, but where you do need to borrow the golden rule about student borrowing is simple – always borrow in the following order:

• Student loan
• Interest-free overdraft
• Commercial borrowing

Don’t forget to get the most out of your bank account by taking advantage of student accounts. You can find more information in our dedicated Banking section.

*Remember, anything you borrow through an interest free overdraft will need to be repaid. If you have been able to access an interest free overdraft through your student bank account, you should ensure you understand the terms for repayment and plan ahead for this.

Before you think about borrowing money it is important to remember that you are making a commitment to repay this. Before making this decision, there are a couple of important things you need to do.

Firstly, make sure you have all the income you are entitled to through student support, benefits and income through employment. There is no point borrowing money where you may have access to financial support. This includes making sure you have accessed all of your student funding entitlement so make sure to read the information via our webpages, and the information on your student funding body webpages.

Many UK students will find themselves eligible for other university funds that may be available to help if you are struggling to meet your essential living costs.

Additional financial support for UWS students

Secondly, make sure you are making the money you do have stretch as far as it can by budgeting effectively. This means taking the time to look at what money you have coming in and going out and preparing a realistic budget to help you understand what you can afford to spend.

For more information and about help about budgeting, and getting the most out of your money:

Check out our Money & Debt Advice webpages

Lastly, ask yourself do you really need to make the purchase, and is it going to be worth it once you factor in the true cost?

Borrowing money to buy the essential things in life, like food, is not recommended. If you are considering borrowing money because you struggle to make ends meet each week or month, you may wish to book an appointment with an adviser where we can support you to reassess your finances and prepare a budget.

UWS Funding & Advice Team

Borrowing money will involve making repayments, so it is important that you calculate how much of a repayment you can afford before committing to any agreement. You shouldn’t try and commit to borrowing if the repayment is more than you can afford as the impact of not being able to keep up your repayments as agreed can be significant.

It’s also important to calculate any repayments based on the true cost of borrowing, which is the amount of money you plan to borrow plus the interest that you will be charged. Most lenders will be able to tell you the true cost of borrowing from them before you apply or commit. Those that don’t will give you enough details to work it out yourself, which can involve a little bit of mathematics.

APR stands for Annual Percentage Rate and is the way most lenders reflect the cost of borrowing. Comparing APRs of different lenders is the easiest way to compare which is cheapest, and helps you calculate the true cost of borrowing. If you are comparing lenders, those offering the lowest APR are the cheapest.

A good resource to use is the Money Saving Expert's interest rate guide for beginners, which explains everything you need to know about interest rates including savings, credit and APR.

It is very important to stick to the repayment terms of any loan you take out, and to pay at least the minimum payment towards credit cards each month. If you miss payments, or fail to pay the amount you should, this can impact your credit history which can have a knock on effect on your wider finances that can last for a number of years. See the section below on credit rating/scoring.

Generally, people with higher incomes are able to access cheaper rates when they borrow. This is because lenders will view them as less risky than those with lower incomes, but that doesn’t mean those with lower incomes can’t find good deals. It might just take a little bit of research, and involve using less well known lenders.

If you have repayments that are a flat rate each month or week, it’s pretty easy to keep track and to adjust your budget to account for these.

If you have borrowed through a credit card it can be more difficult to plan ahead and budget when the balance can fluctuate and there isn’t the same fixed term for repayments. Your lender will issue a statement each month which will detail your minimum monthly payment but you should consider paying more than this as it can save you money in the long run.

For example: You get a credit card with an interest rate of 25% and use it to buy a new laptop that costs £500. Each month, you receive your bill. It tells you the outstanding balance, how much interest will be added if you do not pay in full, the minimum payment you need to make that month and the date by which it needs to be made.

• If you only ever pay the minimum amount, it will take you 17 years and 7 months to pay the balance, costing £1,013 in interest.
• If you make a fixed payment of £15 each month, it will take 4 years and 5 months and cost £292 in interest.
• If you make a fixed payment of £20 each month, it will take 2 years and 11 months and cost £181 in interest.

With the above illustration you can start to see how far an extra £15 per month can go to reducing your total debt repayment. Money Saving Expert's minimum repayments calculator can help you to work out how much it costs to borrow on credit cards, and how much you could save by paying even a little above the minimum monthly payment.

Always try and use direct debits so you don’t have to remember to make the payments every month. Keep a note of each payment date, and check your bank account regularly to ensure you have enough money to cover the payments.

The general rule about repaying debts is to pay the most expensive debt first. While it can be tempting to get rid of the smaller debts first, it will only cost more in the long run.

There are lots of different types of borrowing that can be offered by different types of lenders. Here are a few key pieces of information:

• Credit cards allow you to spend money you don’t have and apply an interest rate. These are best avoided for everyday spending or withdrawing cash and it's a good idea to pay in full each month to avoid interest.
• Store cards are like credit cards that tie you to one store. They usually offer great introductory deals but can have high interest rates.
• Catalogue accounts are like store cards where you are extended credit to buy through a specific catalogue.
• Hire purchase is like a rental agreement. You pay weekly or monthly amounts but don’t own the product until you have paid in full. Weekly amounts may seem manageable but interest rates can be massive.
• Bank loans are hard for students to come by and involve you receiving a lump sum and paying a regular amount back each month. Unsecured loans are the most common for borrowing smaller amounts. Secured loans are more serious as they are secured against something valuable, such as a home or car.
• Payday loans are short term loans designed to cover the shortfall before payday. They are not designed for students and are best avoided. They might seem like a good deal to begin with, but many people, especially students, struggle to repay as agreed, meaning extra charges are added and the debt spirals out of control.
• Credit Unions offer a variety of financial products and services from savings to loans. They are a member based organisation so your savings will impact the type of borrowing available to you.
• Doorstep lenders offer loans and manage the repayment through home collections. Rates tend to be very high as the company target those from lower incomes who might not be able to borrow from conventional sources.

  This type of borrowing is very risky. Anyone lending money should be licensed to do so and you can check if lenders are on the register here -  Financial Conduct Authority | FCA. The doorstop agent does not need an individual license but the company they represent must have this. Otherwise, any lending they do is illegal and should be reported. Criminals can operate in this way so be very, very wary if someone offers to lend you money by an unsolicited visit to your home or a casual conversation when you are out and about.

Generally, people with higher incomes are able to borrow from conventional lenders, such as banks, with little issue. This is because lenders will view them as less risky than those with lower incomes. People with lower incomes can find it more difficult to borrow from conventional lenders, so are often left with little option but to borrow from more expensive lenders and pay higher rates of interest.

It is possible for those with lower incomes to access fair and affordable credit. It might just take a little bit of research, and involve using less well known lenders. Whether you are from Renfrewshire or not, the Renfrewshire Affordable Credit Alliance (RACA) has helpful information for you.

If you would like to find out more about affordable credit, RACA have commissioned a booklet which you can read an online version of here:
Renfrewshire Affordable Credit | Support | Engage (engagerenfrewshire.org)

The new borrowing on the block is Buy Now Pay Later, which sounds like a great deal. For those who can stick to instalments and don’t overspend, it probably is...but is that you?

Companies such as PayPal, Klarna, Clearpay and Laybuy offer customers the chance to pay purchases off in instalments, pay later or pay at 0% over a set period. This can be both online and in store and is common in the fashion industry.

The main pitfalls with this type of borrowing are:

• You can easily be tempted to overspend.
• Whilst each provider might have a low limit, you can end up owing £1000s over multiple providers.
• If you struggle to make repayments you will be charged fees which can vary wildly.
• This industry is going to become regulated but isn’t as of yet. This means that currently you do not have FCA protection on this type of borrowing. Regulations proposed will be affordability checks, possibly credit checks and more support for people who are struggling. However, if you take these types of credit deals in the meantime, there is little protection for consumers. There is no section 75 protection and currently no ombudsman to direct any complaints to.

To find out about BNPL in more detail, read the Money Saving Experts: Buy Now Pay Later Guide.

Many students are using companies like this to spread or delay the cost of shopping, but make sure to carefully consider what you are getting yourself into and whether this is right for you.

Whenever you apply to borrow money, it is likely that the lender, as part of your application, will want to know more about your financial history.

This is called a credit check and will allow the lender to see how much you have borrowed from other lenders and how well you have managed the repayments. If you have not managed repayments very well in the past and have had charges for missed or late payments, your new lender may be able to see this during your credit check and will take this into account when making their decision.

When it comes to credit ratings and scorings, there is no such thing as a universal system as every lender has their own system, but it is a good idea to take actions to improve this, which can result in you being offered credit with better deals attached.

You will find a lot of useful information about credit scores and how to improve yours on Money Saving Expert.

Whether you need a small run around or a family car, buying a car is a big financial decision. We would caution students against making large-scale financial commitments during their studies if this can be avoided. However, sometimes a car is an essential and we want to make sure you have the best advice available should you need to consider buying one.

The first and most important thing we suggest is to do some research. Do not just visit car showrooms! Car salespeople are there to sell to you. No matter how friendly they are, their ultimate goal is to sell products and services; they do not have your best interests at heart! Use trusted sources to understand a bit more about buying a car, what to consider and how to budget for this. Which have a guide to where to buy a car which you may find helpful.

As well as the initial outlay for a vehicle, you also need to consider the longer-term costs of running the car and Money Helper has a range of pages to help you with this. Check out our travel page for more helpful links for working out costs and getting the best value insurance. A car is a large outgoing and it is important that you work out all the associated costs before going ahead.

Taking a bit of time to research and think things over before looking at actual cars will help you to make sure you make clearer decisions. Once you are a bit clearer on what might be suitable, Money Saving Expert have in-depth guides on buying both new and used cars. These can help you work out your needs and give you helpful tips for when you go to look at vehicles.

Once you have a better idea of what car would suit your needs and what level of cost to expect, the next thing to find out about is the many ways to finance a car purchase. This is where just popping into your local showroom can cause your finances to come undone. Car finance options are confusing and without a little preparation it can be so easy to stumble into an unsuitable and costly agreement. For a quick overview Money Helper have a Best Way to Finance Buying a Car guide. We have broken down the options and provided links to other more in-depth articles so you can read up carefully on your preferred choice.

Paying in cash – you own the vehicle and aren’t paying any interest, so this is the cheapest way to buy a car. You will not need to worry so much about depreciation as you do not have a finance agreement. Owning the car outright also means if your circumstances change it is much easier to sell the car on. It does mean you might be buying an older car so do factor in running costs and maintaining the vehicle well.

0% Credit card – not a particularly good way to pay for a car but it may work well for those with good credit ratings who only need a small run around. Providing you pay off the balance within the 0% period, this is cost effective. You also benefit from section 75 consumer protection by putting the purchase on a credit card. Often 0% periods are only for a relatively brief time, so therefore it will not be a great option for every car purchase as the monthly repayments may be too high to manage. If you divide your repayments up to ensure the full cost is paid off before interest is applied, then this has similar benefits to paying in cash. Money Saving Expert has lots of guides on credit cards; check out Best 0% Credit Cards if you think this is the option for you.

Personal loan – borrowing from a bank or online lender can be a really effective way to finance buying a car. Rates and length of agreement will vary depending on credit rating and circumstances. However, if you secure good terms then this can also be a very cost-effective option. Most lenders offer between 1 and 7 years and you will own the car from the start. This means if things change you can sell the car and pay off the loan early. Again, make sure you get the best deal from the off by doing a bit of pre-reading. Money Saving Expert has a Cheap Personal Loans Guide to assist you.

Personal Contract Purchase (PCP) – this is one you will commonly see in car showrooms. It’s a bit like a personal loan but the rates and terms are tied in with the vehicle. Unlike with a personal loan, you won’t be financing the full value of the car and you won’t own the vehicle. This is where things start to get complicated. The monthly payments on a PCP agreement will be lower than a standard loan. This is because you pay for the car in 3 parts:

• Initial deposit – commonly around 10% of the total value of the vehicle
• Borrowing – the amount of borrowing required is dictated by the predicted value of the car at the end of the agreed term. So, you are taking a loan for the difference between what the car is worth when you bought it and what the finance company predicts it would be worth at the end.
• Balloon or Guaranteed Future Value payment – a lump sum payment which if you make it, you will finally own the car. Other options at this stage are to hand the car back or to use it to secure a deposit on a new deal.

Terms on PCP deals usually run from 3 – 5 years and the interest on the borrowing can typically be around 4%. It is worth noting that you do pay interest on the sum of the 3 parts and not just the middle one. As the figures are tied in with the car’s predicted value, wear & tear and milage are key parts of these agreements. When you go this route, make sure you ask in advance for any fair wear & tear policy and do understand the mileage agreement you are signing up to. The penalties for handing back a damaged car or going over the mileage can be hefty and really increase how much you will owe.

PCP is quite hard to understand and is often sold on low monthly payments. What you need to make sure you know in advance is how much it will cost overall. It is a good option if you want a newer car, or you are happy to change cars regularly.

To help you here is an example of a PCP deal:

Family car cost £20,000: This is made up of a £2,000 deposit, a £6,000 balloon payment and a loan for £12,000. Interest will be paid on the full £20,000 even though it is built in during the loan period. So, the actual outlay is £21,257. The repayments will be £368.25 per month over the loan period.

This may be cheaper than standard borrowing, but you do have to be sure that your circumstances won’t change during the agreement as handing the car back can be difficult and costly. You also need to be certain you can stick to the mileage and keep the car in good condition.

As student money savers we would hope you do not consider vehicles at this level of cost. This is for illustration only. Remember you are only a student for a fixed period so considering a cheaper/smaller car is the way to go.

To read more about PCP Both Money Helper and Money Saving Expert have good articles that explain these deals in depth.

Hire Purchase or Forecourt Finance – This is another option where you won’t actually own the car. You make agreed monthly payments, which over the term of the loan covers the entire cost of the vehicle. As they are secured on the car, they can be easier to obtain than standard loans and can have a lower cost. The finance can be provided by the dealership or sometimes the manufacturer (e.g., Honda) or in independent dealers/car supermarkets by a larger bank such as Lloyds. The finance company owns the car and if you fail to keep up repayments then it can be taken back. This is a good option for longer-term deals. You will usually have to pay a deposit of around 10% and at the end there is likely to be a small transfer fee. Money Saving Expert has the best guide if you want to find out more.

Leasing or Personal Contract Hire (PCH) - You will never own the car but as often the costs of servicing and maintenance are built in, it can be a streamlined way to fund your transportation. Like PCP, you will be agreeing upfront mileage and wear & tear standards. Overall, leasing can work out cheaper than PCP due to not having the balloon payment at the end. Whilst monthly payments are likely to be higher. A useful comparison is available on Money Helper’s guide to PCH.

PCH Agreements usually last 2 – 5 years and if you absolutely know you will not want to keep the car, they can be a great option. Deposits can be large, but you can often get a cheaper deal on a higher spec vehicle as the leasing company will have bought stock in bulk, reducing their risk and depreciation costs.

You may find a PCP deal advertised as 6+35 over 36 months. What this means is the 1^st payment is equivalent to 6 monthly payments. So, you would be looking at a £1,200 upfront payment on a deal that is £200 per month over the remaining 35 months.

Leasing isn’t confined to luxury cars. Now that there are a wide range of companies offering this type of arrangement you can hire smaller, more student friendly options such as a Ford Fiesta. For some comparison tips and details of leasing companies, check out Money Saving Experts Cheap Car Leasing Guide.

Ultimately, the way you finance your vehicle will depend on a wide range of factors such as budget, initial outlay, credit rating and what you need your car for.

If you take only 1 piece of advice, make sure it is to read up fully on the different options and have a clear plan before setting foot in a showroom! Do use all of our budgeting advice to help you understand what you can afford and not tie yourself into a deal until you have really thought it over and fully understood its terms.

Whilst our general advice would be try not to borrow during your studies. Sometimes, this simply isn’t possible. If you have existing debts, you might find it beneficial to review these and work out if you are currently getting the best value.

Step 1 – Understand your current credit file and what impact this has. Use our section on credit scoring to find out more. Read the Money Saving Expert Guide and take any steps to clean up your file.

Step 2 – Review all your credit agreements, taking note of your current terms, interest rate and if you have any exclusive deals, when these end and if you are tied to them or not.

Step 3 – Review your budget to see how much money you have available to repay your debts. If you have funds available to pay more, you may be able to pay something off more quickly, especially with a better deal. Remember there are multiple guides and sources of advice on the Budgeting & Planning webpages.

Step 4 – Do your research. Credit is a commercial business, lots of companies offer deals but they may not be the right one for you or your circumstances. Use reliable organisations such as Money Helper; Money Saving Expert; and Which to find out more about the type of credit you are considering.

Step 5 – Try soft search options. As you will have seen in Step 1, applying for credit has an impact on your credit file and therefore your options. Money Saving Expert has eligibility calculators for Loans and Credit Cards, where after filling in a few details you will see potential options available to you, without impacting your credit score. If you do not get a new deal, it is not the end of the road. You can still follow the tips below to work out the quickest and most cost-effective ways to pay off the debts you have.

Step 6 – Use a calculator, either a good old fashioned one or a bespoke one such as Money Helper’s Credit Card Calculator or Loan Calculator to work out if the deals you have found work for the money you have free to pay towards your debts. Or, if you did not find a viable alternative, use them to work out which debt to focus on first and how much money it will take to pay this off effectively.

Step 7 – Loan v Card. Using the steps so far will help you decide if a low-cost loan or a 0% credit card is best for you. If you are quite disciplined, then a 0% credit card (if you can get one) is the absolute cheapest way to borrow. There are options for balance transfers out there that can last as long as 2 years. If you know you WILL NOT spend any more and can afford to pay the full balance off within the 0% time limit, then this is the cheapest and best way to get rid of a debt.

If you lack discipline and have been tempted to spend on credit cards in the past; a low-cost loan at a fixed rate may represent a better deal. Again, it is about working out what you can afford and seeing if a different loan represents better value. Just make sure by either method you borrow only what you need and do not increase your overall debt.

Step 8 – Avalanche v Snowball. There are 2 snow-based options when approaching paying off debt. Which one works best is a matter of preference and motivation. If you have a personal loan, this will be fixed and these methods won’t be an option. This is for debts that can fluctuate such as store credit, catalogues, Buy Now Pay Later and credit cards.

• Snowball: Pay off the smallest debt first and as quickly as possible, maintaining minimum payments on any other debts. As soon as you pay this one off, move to the next smallest, adding what you repaid to the first plus the min payment till that one is paid and so on. The thinking behind this is, if you have quite a lot of debt which will take a while to clear, psychologically you will feel more motivated and positive if you see some balances disappearing.
• Avalanche: This is the more commonly recommended method as it can represent the biggest interest saving. This method focuses on paying the most expensive debt off first. Pay all your available funds to this one and pay the minimum on all other debts. Once this is paid, shift all the available funds to the next highest interest debt and so on. As you are paying the more expensive first, this does save more money overall.

On both these methods you may find you receive letters from your creditors who you are paying the minimum on. Martin Lewis talks more about this in this Persistent Debt Help Guide. Whilst the legislation to encourage people to pay more than the minimum is there to help, it does lack nuance for those with more than 1 form of borrowing.

Which one works best for you will depend on how much you owe, what you have available to spend and what makes you feel the most encouraged.

Step Change is a UK wide Debt Charity which offers free and impartial debt advice. Their Debt Remedy tool allows you to enter details of income, expenditure and debts anonymously. You will then receive a personalised action plan with lots of advice on how best to deal with your creditors and recommendations on the debt remedy best suited to your situation.

If you decide to proceed with a debt remedy you won’t have to attend any appointments or meet with an adviser face to face. This can all be completed online with telephone advice available at any stage should you need it.

National Debtline is a free, independent and confidential debt advice service run by the charity Money Advice Trust. They have a lot of useful information including guides, fact sheets, budget tools and sample letters to help you write to your creditors. They also have a free advice line that you can use to speak to expert advisers who can help you deal with your debt.

Citizens Advice Scotland offers the largest independent advice network in Scotland through Citizens Advice Bureaux across the country. They have a lot of useful information online to help you manage your money, and also have professional, qualified advisers available to guide you through an action plan.

Citizens Advice offers the largest independent advice network in England through Citizens Advice Bureaux across the country. They have a lot of useful information online to help you manage your money, and also have professional, qualified advisers available to guide you through an action plan.

Christians Against Poverty is a charity which was set up to assist people with debt. CAP will help anyone regardless of their religious beliefs. A CAP Debt Coach can visit you at home and provide advice appropriate to your situation. CAP distributes payments to creditors on your behalf. Payments will be affordable to you and will even allow you to save whilst paying off debt. CAP can also attend court with you. All services are free.

Money Helper is an independent service, set up by the government, to help people manage their money. They do this through a free and impartial advice service and also work in partnership with other organisations to help people make the most of their money. Money Helper also has a debt advice locator tool. If you prefer face to face advice this is particularly helpful as services vary depending on where you live.