Personal Loans for Student Living Expenses: An In-depth Look
Tuition isn’t the only expensive part of going to college. The cost of living is constantly rising due to factors such as limited housing availability and increased demand in college towns.
If you’re looking for a way to pay the bills as a college student, this is the guide for you. Let’s go over different strategies for financing student living expenses, including the pros and cons of using a personal loan.
Unraveling the cost matrix of modern college life
Living life in a college city can be very expensive. For a typical college student in the average college town, the cost of living can quickly become overwhelming.
Here are the common student living expenses.
- Housing (dorm or rental apartment)
- Commute and parking fees
- Academic necessities (e.g. textbooks)
- Entertainment and student social activities
City vs. rural universities
In terms of cost, cities are typically more expensive to live in. On top of higher tuition costs for universities and colleges in urban areas, the food, housing, and transportation can also be more expensive.
While rural colleges are often more budget-friendly, in general, it can still be challenging to afford all the various living expenses as a student.
Why scholarships and grants aren't always enough
Scholarships and grants are limited in availability, making them extremely competitive. It can be hard to even meet the eligibility criteria or uncover which scholarships you can obtain.
Even students fortunate to receive scholarships and grants can still face financial challenges. Many grants only provide partial coverage for your academic expenses, covering tuition and other educational fees. You might not have enough income and savings to pay your other bills.
Many students find themselves with budget deficits despite academic funding, resulting in stress and the need for additional money. Unforeseen expenses can also pose a serious problem.
Taking out a personal loan is one way to help pay the bills. If your application is approved, the loan amount will be directly disbursed into your bank account, allowing you to use the money freely with few exceptions. Whether that’s to pay down your credit card balance or deal with an emergency, the loan funds are yours to spend.
Should you get a personal loan?
It’s always advisable for students to carefully weigh the pros and cons of taking out a loan before they do. Here are the main characteristics of a personal loan that students should know.
One of the main advantages of a personal loan is that you can get quick funds for nearly whatever you need. The loan approval process is fast and accessible, able to be completed both online and in person. There are even same-day loans if you urgently need funds.
Competitive interest rates
Most personal loans come with fixed interest rates and clear repayment structures. This can make the debt easier to manage. You also have the potential to receive lower interest rates than if you use your credit card, which can help you save on interest over time.
Compared to credit cards, personal loans usually have lower interest rates. This means that if you need to make a big purchase and will need more than a month to pay off the balance, a personal loan could be a cheaper financing method than a credit card.
Personal loans are usually unsecured, which means that you won’t need to offer any assets as collateral. This can be convenient since many students do not have assets to their name yet, so the collateral requirement could be tricky to meet.
If you have poor credit, you may instead prefer a secured personal loan. These secured loans are backed by collateral, which is anything of recognized value, such as property, vehicle titles, or collectibles. However, beware that defaulting on a loan (i.e. failing to repay the loan) means the lender can seize your collateral assets to recoup their losses.
Credit score impact
A common obstacle young adults face when trying to obtain loans or credit extensions is a lack of established credit. Creditors take creditworthiness seriously when making loan and credit decisions, making it harder for young adults without lengthy credit histories to be approved. Here lies the credit conundrum: you need credit to get a loan, but you can’t get credit unless you’ve proven you’re creditworthy.
By applying to reputable lenders and finding a suitable loan, you can embark on your credit journey. Many college students already have credit card and debit card accounts. Paying loan installments is another way you can establish that you are creditworthy, as long as you make the payments regularly and on time. Adding a new type of active account to your credit report can also boost your credit score since it improves your credit mix.
Tangible benefits of using personal loans for living expenses
Seamless continuation of studies
Financial interruptions and stressors can make it difficult to focus on your studies. Instead, you might need to think about how to pay for groceries or meet rent for the month. Taking out a personal loan with a long loan tenure is a strategy that can help you concentrate on graduating college first without worrying about making ends meet.
Afford essential resources
Textbooks and other academic materials can be incredibly expensive as you enroll in more college courses. A personal loan can facilitate academic success and resilience by allowing you to afford key resources needed for your studies.
If you can manage your finances and repay the loan on time, you can establish your creditworthiness early in life. This makes it easier to get credit or loans such as mortgages later down the line, enabling you to meet your long-term goals like buying a house.
Note that if you obtain a personal loan but end up missing payments or defaulting on the loan, this can damage your credit score and leave a negative mark on your credit report. Responsible financial management is an important part of taking out a personal loan.
Financial due diligence
Taking out a personal loan is an incredibly convenient financing strategy. However, it has certain drawbacks and risks. Take the following steps into account if you’re considering a personal loan for your student living expenses.
Assess your current financial situation
Before you apply for a personal loan, it’s vital to understand your current financial standing. Ask yourself the following questions as a start:
- What is your monthly income?
- What is your average monthly expenditure?
- Will you need to adjust your budget to repay the loan?
- Does the personal loan clash with your student loans?
- How much income can I expect after I graduate?
Since financial situations can fluctuate, it’s a good idea to check in with yourself every so often so you have a good awareness of your own financial health and needs. That way you can see if you truly need a personal loan.
Borrow only what you need
Personal loan lenders will tell you the minimum and maximum loan amount you can borrow. It’s a good idea to only borrow as much as you need. That way, you can avoid unnecessary debt. If you aren’t sure how much of a loan you should borrow, create a budget and estimate your expenses before seeking out a personal loan.
Check your credit score
Other than your financial health, it’s also a good idea to check your two main credit scores: VantageScore and FICO. Many young adults aren’t sure where to begin when it comes to building good credit. By monitoring your credit score, you can get a better idea of whether a personal loan would benefit you.
If you have a low credit score, the loans you qualify for may have high interest rates and strict repayment terms. You won’t have much leverage in negotiating better loan terms. On the other hand, if you have a good or excellent credit score, your personal loan terms are more likely to be favorable.
Note that whenever you apply for credit or a loan, the creditor will make a hard inquiry that can dip your credit score by around five points. Because of this, you might want to avoid applying for too many types of loans in a short period of time. Another way to mitigate the negative impact on your credit score is to go through the loan pre-qualification process, which doesn’t affect your credit score.
Find a suitable lender
Not all lenders are suitable for young adults and college students. When you’re considering different loan offers from multiple lenders, it’s advisable to not just compare the loan terms and interest rates, but also the lender's reputation. Choosing a suitable lender known for providing student-friendly loans can make a big difference.
Consider your prospects
It can be tough having a debt burden, especially if you already have existing obligations in the form of a student loan. Make sure that you map out your loan repayment schedule and create a budget to see whether you can manage your loan debt for the next few months or years.
You can use an online loan calculator to help with calculating how much interest you will need to pay over the life of the loan. In general, the higher the interest rate and longer the tenure, the more expensive it will be to take out a loan.
Alternative avenues to supplement student income
If you’re looking for alternate methods to supplement your income, here are some other opportunities you might want to consider.
Work-study programs can open up new career and income opportunities to students. One example is the Federal Work-Study (FWS) program offered by the Department of Education.
Campus-based part-time jobs
Colleges offer a wide variety of part-time job positions to their students. You can check to see what options are available on your college campus. These jobs often facilitate social networking, letting you connect with others in your college.
If you’re comfortable with animals and love helping them, you might want to train yourself in pet sitting and dog walking services. Popular online platforms for pet sitting include Rover and Wag.
Digital gig economies
An accessible and convenient way for students to make money today is to pursue digital gigs. Consider what skills and capabilities you have. For example, students who write or create graphic designs can take on freelance projects. Students skilled with cameras might offer their photography services.
For aspiring entrepreneurs, starting a small business could be a valuable way to supplement their income. Here are a few ideas that can provide inspiration.
- Content creation (e.g. starting a blog)
- Launch an e-commerce store for physical or digital products
- Offer photography or illustration services
- Provide coaching services
- Sell handmade crafts
- Join freelancer platforms
However, it is important to balance any business ventures you start with your studies. Even though alternative avenues for generating income can be a good opportunity to build experience and network, they are also risky, time-consuming endeavors that can’t guarantee success.
At the end of the day, students should take care to balance their financial responsibilities and needs with their academic ambitions. Before making a change such as taking out a loan or pursuing freelancing gigs on the side to increase your income, it’s advisable to consider all your options. Making informed financial decisions can help you avoid unnecessary debt and make the most out of what resources and time you have.
Here are common reasons to consider a personal loan for student living expenses.
- A personal loan can be flexibly used
- You can choose the loan amount you want
- The interest rate is fixed
- Collateral isn’t required
- You can establish credit by paying the loan back on time
Since it can be daunting to take out a personal loan as a student, here are a few loan providers known for student-friendly features that can get you started with finding the optimal lender for your individual needs.
Personal Loans Company Reviews
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