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Where To Borrow First

Most personal finance experts advise the following strict order of priority for borrowing money:

1. Official Student Loans
   
   Read moneysavingexpert.com's Student Loans: Everything You Ever Wanted To Know
   
   
2. Student Bank Account Interest Free Overdrafts
   
   The High Street banks usually offer 0% on overdrafts up to a certain limit to those that they hope will be  potential high earners and will stick with them for life.  The reason this option is not first is that after you graduate the banks will start charging an expensive commercial rate of interest, whereas student loan debt always remains cheap.  To find the right bank account  for you, see moneysavingexpert.com's Top Student Bank Account 2008/09 
   
   
3. Professional Development Loans
   
   See a Guide to Professional Development Loans
   
   Lloyds TSB Further Education Loan
   
   Natwest Professional Trainee Loan
   
   HSBC Professional Studies Loan
   
   
4. All Other Debts (To Be Avoided)

If you don't have an income you can't repay the debts which means the interest will compound and build quickly leaving you owing serious cash.     A credit card can help in a cash flow crisis (e.g. when you’re waiting for a student loan instalment or wages). But pay it off in full as soon as your awaited money arrives. Spread the costs of expensive purchases (eg textbooks) on a card that offers 0% interest on purchases for the first 6 months. Split what you owe into 6 instalments and pay off 1/6 each month. Don’t make minimum repayments only or you won’t clear the debt before interest kicks in. Note the date when the 0% rate expires in your diary, pay off the debt before then and CANCEL THE CARD!  If you have frequent cash flow crises and you're spending more than you can afford - see our Cutting Costs page.  

WARNING!!! 

• High interest rates (10 - 20% APR) make credit cards an expensive way to borrow money
• Unlike student loans and overdrafts which are repaid after you graduate, credit card bills arrive monthly
• Credit card companies charge around £25 for missed / late minimum payments. And if your payment bounces, you’ll pay £25 to the card company plus £30 in bank charges
• NEVER withdraw cash by credit card. If you get sent credit card cheques shred them. Interest rates on these and cash withdrawals are exorbitant: 20 - 30% APR from the day of withdrawal -  there is never an interest-free period
• BEWARE of payment protection insurance. It will significantly increase your monthly repayment and as a student you are unlikely to benefit from its ‘protection’
• 0% deals rocket to ‘normal’ high interest rates after the initial deal expires
• Many students miss out on the best interest rates because of a lack of credit history or a poor credit rating

Part of the content of this page is reprinted with kind permission of the Royal Medical Benevolent Fund from www.money4medstudents.org