Funding your studies - credit card or personal loan?

Funding your studies can be difficult, especially if you are not receiving financial support from your parents or if you are sitting a second degree. While you can apply for student loans, overdrafts, and bursaries, these are sometimes not enough to cover the cost of living while at university, let alone any tuition fees that you might have to pay. You could always get a part time job, but if you are looking to do a particularly intensive course, such as medicine or law, then you may struggle to find the time to do the necessary amount of study if you are working as well. One option would be to borrow more money, in the form of a personal loan or a credit card.

Personal loans are often referred to as unsecured loans, as you do not have to put up any assets, such as a property, as collateral. They offer a number of advantages over credit cards in some situations. For starters, the interest rates tend to be a fair bit lower when you are dealing with large sums of money. Also, because you have to repay a fixed amount every month, you can budget for these repayments, and you also have a clear idea of when the debt will be fully paid off.

If you only need to borrow a relatively small amount of money, for example a thousand pounds, then you may well be better off with a credit card. Interest rates on small personal loans tend to be a lot higher than the rates for larger loans, whereas credit card interest rates tend to be roughly similar no matter how much you are borrowing. The minimum you can get away with paying each month on a credit card is also significantly lower, although the downside of this is that you could end up paying it off for a long time without really making a dent in the total debt.

As a general rule, personal loans are advertised with a typical interest rate, which is the rate that they offer to the majority of customers. However, the actual rate you are offered can vary depending on the loan amount and your credit rating. If you have a history of paying your credit card and mobile phone bills on time, then you can expect to receive a favourable rate, but if you frequently miss payments or have defaulted on any loans in the past, then they will be more reluctant to lend to you, and if they do it will be with a fairly high interest rate.

Whatever you opt for, make sure you check the interest rate and any charges on each product very carefully and make sure you fully understand what you are taking on. We would always advise consulting a qualified financial adviser, particularly if you have any doubts whatsoever.