What is a Career Development Loan?

A career development loan is available in the UK and works in a similar way to a student loan. It has free interest during the time of study, which is paid by the Skills Funding Agency, which is a government department; and then goes onto a variable interest rate afterwards. As soon as the course ends you will have just a month and then will have to start making repayments and the interest will start being added on. They can be used for training courses as well as academic courses which help you progress in your career or to get back into work. The courses can be up to two years and the loans are for £300-£10,000 at the moment. You will not be accepted if you have savings of more than £16,000 and if you do not finish the course you will still need to repay the loan. In fact as soon as you finish the course you will be expected to start making repayments, so if you finish early, repayments will be expected early.

You will be able to repay the loan over a series of months or in one go. There may be an early settlement fee for this and so you will need to check the terms and conditions. The interest rate, can be high, once you have to start paying it and so it can be worth working towards paying it off before that kicks in. This could mean saving enough to do so, which is likely to be difficult while studying or you could get a personal loan, with a lower interest rate to pay it off. Although you will still have to repay this and pay interest, it could be a lot cheaper. There is also a chance that you may not be able to get another loan unless you have a full time job. I you have been studying full-time with no job then a lender may not be prepared to give you a loan as you have no income to pay it back.

At the moment this sort of loan is only offered by one provider. This may change in the future though, but it is worth checking to see what is around. There are others which will advertise in a similar way and state that you will not have to make repayments while you study. Although this sounds good, they will still be charging you interest and so they will be a lot more expensive compared with the career development loan, where the interest is paid for you during the year of study. Therefore it is really important to make sure that you look really carefully at the terms and conditions as a year or two’s worth of interest could add up to a significant amount of money that will need to be paid back.

As the interest is being paid by the government you will need to show proof that you are going to be using it for the curse. 70% of what you borrow or more needs to be for the course fees and the money will be directly to the course provider. There are restrictions over what type of course it can be used for. It needs to help for your career but it does not have to lead to a qualification. These could include a postgraduate course such as an MA or MSc, A specialist course in a specific area, a management course, technician training, NVQ or SVQ, a course which gives a professional qualification. Even if your course is one of these, you will still need to check that it fits all of the other criteria required.

The loan can cover up to 80% of the course fees in most cases, which means that you will have to cover the cost of the other 20% However if you have been unemployed for more than three months you may be able to get up to 100%. It will also be able to be used to cover costs such as books, travel, childcare and living expenses such as food, rent, council tax, utilities. However, you must be working for less than 30 hours a week for the loan to be able to cover these costs. This means that you will need to think about whether you have the money to cover the rest of the costs. You may need to save up in advance to pay for it or be able to work while you are studying and cover the costs that way.

So a career development loan could be an option for someone hoping to do further study to further their career. It can be expensive to pay back though and so it is well worth considering whether it is the right option for you. It is worth comparing it to other forms of borrowing to see whether it is a good deal in the long term.

Is it Worth Getting a Guarantor Mortgage?

A guarantor mortgage can be a great way to help children get on the housing ladder. If they do not have a big enough income or a good enough credit record to be accepted for a mortgage then their parents may be able to help out. With parents being happy to take on some of the risk of the loan, it means that lenders are more willing to lend and may possibly lend more money and at a better rate. However, there are risks and it is worth carefully considering these before signing up.
A guarantor mortgage is usually a child taking out a mortgage with their parents as guarantors. This meant that if the child missed a payment then the parents would be responsible. In the past, the terms were often very strict, with a missed payment meaning that parents had to pay off the whole of the debt. However, these days there are more flexible rules surrounding these.

For example, one current policy will allow the borrower to borrow 100% of the value of the property, meaning no deposit is required and the guarantor will be responsible for the amount that is above 75% of the value of the house. This means that the lender will be able to get their money back should the buyer default on payments by selling the home and any negative equity plus costs will be covered by the amount that the guarantor will have to pay. The guarantor will usually own their own property which will be used as collateral on the loan and this means that they could potentially lose their home too, but only if repayments are not made.
These types of mortgage are quite rare and they are all a bit different. It is important to understand exactly what you are signing up for when you take one on. It could be that there is a better way, perhaps lending the children the money for the deposit, or even just helping them to improve their credit rating and save up for themselves. It is hard watching your children struggle financially and it can be reassuring if they own their own home or get themselves in a position where they can start to buy one. However, you do not want to put your own home or finances at risk by helping them too much and so you need to think hard about whether you are willing to take this risk.

Think about whether both parties will be able to manage during the term of the mortgage. If the mortgage holder has trouble paying one month, will the parents be able to help them out to secure their investment and will the child be prepared to ask for that help if needed. Also consider whether any problems with the mortgage could put a strain on the relationship between parents and child and whether it will be worth it. It may depend on how the relationship is anyway and whether money has ever been an issue before and how it was handled. If it was an issue and it caused tension then it may not be worth getting involved together with finances again. If you have not ever got involved with money together before then you will not know what to expect and it is worth considering how you may feel if things did go wrong, repayments were missed and parents had to pay out money. Mixing relationships and money can be difficult and it can lead to problems. If people cannot easily forgive each other it can mean that their relationship can suffer and they may end up not wanting to speak to each other again, which would be a shame. Not everyone will feel like this, but it is important to think about what may happen and how sensitive everyone is when making the decision.

It can also be difficult if parents are asked to help and they refuse. It may be that they do not think it is a good way to borrow money, they do not want to put their home at risk or whatever. If they do refuse to help, this could also cause problems in their relationship with their child and so it is worth thinking hard before even asking about this sort of loan as it could cause problems right away. Parents could be annoyed at being asked too, they may feel that their child should be able to support themselves and not rely on them or they may feel it is unfair to ask them to put their property at risk. So think hard before even considering this type of mortgage and then think through what might happen when you ask parents about it as well as what may happen if you cannot keep up with the repayments.

Is it Always Wise to Repay a Loan Early?

Loans cost a lot of money and interest is normally added on to the cost every month which means that they will get more and more expensive the longer you hold onto them. This means that if you pay back a loan early, you will save all of this interest and so you could save a significant amount of money. Therefore it would almost seem obvious that you should repay a loan early, but there are some exceptions to this.

Firstly, loans tend to have an early redemption fee. This means that you will be charged a sum of money to pay it back early. This can vary a lot depending on the type of loan and the provider and some will not have them at all. Make sure that you are aware of what this is for the loan that you are thinking of paying off early so that you can calculate whether the saving that you make in interest will be more than the cost of the fee for paying it off early.

Some people may worry that if they pay their loan off early, they will have no money left in savings to fall back on. Although this is an understandable viewpoint, it is worth remembering that the cost of a loan is high. If you use savings to pay for it, you could save a lot of money in the loan fees. The savings may have been earning some interest, but it is unlikely that they will be earning more than the cost of the loan. If you have nothing to fall back on, it may feel a bit scary, but once the loan is paid off you can always borrow more if you really need to, but chances are that you will not need to and that you will be much better off financially.
If you have a UK student loan, then it is unwise to pay it back early. At the moment the rules are that the loan only has to be paid back if you have a high enough income and if it is not all paid back by the time you are thirty it will be written off. It does not make sense to pay this back early as you never know what may happen in the future. If you lose your job, take time off to look after children or elderly relatives or are unwell yourself and not working, you may be able to miss repayments and so could end up paying back less than you otherwise would.

If you have an interest only mortgage with the money that you are accumulating to pay it back at the end of the term earning good interest then this may not be worth paying off early. Calculate the cost of the mortgage, including any insurances you have to have alongside it and then compare that with the return you are getting on the money you have invested. You may find that it is better to keep that money invested and growing in value compared with paying off the mortgage early. Obviously this may change over time, depending on interest rates and the stock market, so it is worth keeping a regular eye on what is going on.

These are a few exception though as in most cases it would be much better to repay the loan early than to wait for the full term if you can. Even small amounts that you can pay off will all add up and could lead to the cost of the loan being much less by the time you add up the costs at the end of the term. Ther is also the freedom of no longer being in debt which can really mean a lot to many people. You may think having a loan is fine, but there is nothing like the feeling of knowing that you have paid it off and that you no longer have to worry about it anymore. Monthly loan repayments can be a big drain on your finances and even if you have an overdraft or credit card, which do not need big repayments, having no debt can feel amazing. It can be such a good experience knowing that you are now managing only on money that you actually have rather than living on someone else’s money.

So although it is usually much better to pay a loan off early, both financially and for peace of mind, it is worth giving it some thought. Think about the money that you will save and compare it to what you may be making if that money is invested and look at the fees you may be charged for paying it off early. Also consider the type of loan and whether there are any benefits to holding on to it.