A student loan is a type of loan offered to current and prospective students enrolled in academic programmes at a tertiary education institution. These loans aim to cover all the costs to ensure a student is successful during their studies.
Taking a student loan from a financial institution is a big commitment and will have an impact on your finances going forward. It is therefore important to avoid some of these mistakes when applying for a student loan.
Here Are Some Mistakes To Avoid When Applying For A Student Loan
Not doing your research before accepting a student loan
One of the most important things to consider when taking out a student loan is finding the one that works best for you.
Several banks in South Africa offer student loans each of which has varying terms and conditions. Ensure that you choose one that suits you.
Important considerations include when you are required to pay the loan back, the interest rate, whether or not you need a surety to co-sign your loan and whether the loan covers your existing student debt.
Not having all the required documentation
When applying for a student loan, ensure that you have all the required documentation as requested by the bank/financial institution offering the loan. Not having certain documents could lead to delays in receiving your loan or even lead to your loan application being rejected.
Make sure you know which documents are required by the lender and gather them before you submit your application. These documents can include but are not limited to Identification Documents, bank statements, proof of income, proof of registration and how much money you’ll need.
Applying more money than you need
Student loans aim to cover the costs of your education journey. The amount students should take should ideally cover their tuition fees, accommodation costs and the cost of educational equipment.
It's important to note that you are responsible for repaying your student loan with interest. It is therefore not favourable to take more money than is needed as this would lead to higher repayments.
Only borrow money for the costs that are essential for your education.
Choosing a repayment plan with the smallest monthly payments or the longest repayment term
When choosing your student loan repayment plan, carefully consider the consequences of different repayment options.
Choosing a loan repayment plan with a smaller monthly repayment instalment will leave you with more money in the short term, and it could end up costing you more as time progresses. This is because you are charged interest and repaying your loan over a longer period will require you to pay more interest.
It's important to choose a repayment plan that works best for your circumstances and lifestyle.
Not understanding the terms and conditions of your loan
One of the most important factors to consider when applying for a student loan is understanding the terms and conditions. This includes knowing who is the “principal debtor”.
The “principal debtor” refers to the person who is responsible for ensuring the debt is repaid
While students are normally held responsible for repaying their loans, some student loans require a surety to co-sign the loan and pay interest and other fees while the student is studying.
The surety will also be responsible for the repayment of the loan if the student is unable to make the repayments.
Student loans can impact your credit score in both positive and negative ways. If you default on your student loan repayments, you may damage your credit rating and future borrowing ability.
When repaying your student loan, do your best to keep up with your repayments. If you are unable to make repayments, contact your lender and inform them of your circumstances.
