Financial traps to avoid while at university
As general rule of thumb, the more desperate you are to borrow money, the more it will cost you.
That's why, although short-term loans might solve an immediate cashflow problem (for example if you are struggling to afford your weekly supermarket shop at university) you should check the small print with a fine-tooth comb.
For example, online lender Wonga quotes a typical APR of 26.89%.
To avoid extortionate rates of interest like this, set a weekly budget at the start of the university year and stick to it.
If things get difficult, always seek out interest-free short-term borrowing first; your parents are the best first port of call if they can afford to help and you stick to the agreed repayment plan.
When you arrive at university, banks trip over themselves to net your custom. This is because, while you may not have much money now, they know that in a few years' time you are likely to have a decent salary under your belt and will be a valuable (and hopefully, loyal) customer.
To entice you through the doors, banks will offer freebies such as MP3 players, discount railcards and even straightforward cash.
But while these perks are not bad in themselves it's important to look beyond them to the account facilities such as interest and charges on overdrafts. After all, these are likely to be relevant for years whereas your upfront 'freebie' will soon be forgotten.
Interest-free credit cards offered to students are only useful if you are sure you can clear the balance before incurring any interest - for example, if you know you are in line for a cash injection from your parents.
However, if this isn't the case, as a student, it's fairly unlikely that you will ever find yourself with 'spare cash' you can use to clear your credit card balance. More likely is that you will have other debts mounting up instead and will be playing a constant game of catch-up.
In this case, regardless of the initial offer, credit cards at university are usually best avoided altogether.
The vast majority of ATMs can be used for free regardless of which bank or building society it belongs to. But don't come unstuck as some cash machines will charge £1.50 or more to make any withdrawals of any amount.
While these are usually standalone machines found in newsagents or petrol stations, others can look like harmless 'holes in the wall'. Think ahead and get organised with your cash withdrawals, to ensure every machine you use won't charge you just to access your own cash.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.