Getting Your Head Around Money Matters
If you’ve recently begun living away from home for the first time, or you feel the time’s right to become more independent, understanding basic money matters is essential, even if it sounds like a bit of a yawn. So here’s a quick run-down of the stuff you really need to know.
Applying For Credit Products
Sooner or later you’ll probably need to pay for something urgently that your savings alone won’t cover. Unless a friend or relative can give you a loan, you might want to enter the world of credit.
There are quite a few things that could affect your credit application, including:
If you decide to apply for any form of credit, the chances are that the lender will ask a Credit Reference Agency to give you a credit score. The Credit Reference Agency will take all the points outlined above into account when compiling your report, along with details of any existing outstanding debts you may have.
Don’t panic if you haven’t had a chance to build up a credit history yet - it’s still possible to improve your chances of getting a loan. Start by checking you’re on the electoral role and that your details are correct. Try applying for a bank account or prepaid card and once you’ve built up a good relationship with the provider, see if you can get an overdraft. Because this is a form of credit, this represents a good opportunity to start building a credit record. Also look out for prepaid cards and credit cards that can provide credit building features.
Meanwhile, pay all bills on time and once you have opened an account, don’t stray overdrawn. And try to avoid making multiple applications for credit – especially if you keep getting turned down. You could check with one of the Credit Reference Agencies to see if all your good works are improving your credit history – and whether you’re now likely to be extended offers of credit.
To help you to compare how competitive (or not) a credit offer is, all credit product offers must show you the Annual Percentage Rate, or ‘APR’1. This shows the cost of borrowing a certain amount over a year, including any extra costs that the credit may entail, such as set-up fees. The lower the APR, the less the credit will cost you. However, different types of credit will have varying levels of APR. For example, a mortgage (loan to buy a home) will have a lot lower APR than a credit card. And a pay day loan will usually have a lot higher APR than a credit card.
There are various types of credit out there, but the most likely types you’ll come across if you’re a young adult are credit cards, loans and overdrafts.
Credit cards
These are particularly handy if you need to have a line of credit at your fingertips in case you need money ready to use in an emergency. This could be for anything from urgent repairs to needing to buy study material in a hurry. But this financial flexibility comes at a cost as credit cards can be a fairly expensive way of getting money. Try not to use a card on stuff you don’t really need – having a night out isn’t a financial emergency! It’s all too easy to steadily build up a debt that could become a struggle to repay. That in turn could damage any start you’ve made on building a decent credit rating. However, use credit cards wisely and they can be a valuable lifeline. There are plenty of credit cards out there, so if you’re in the market for one, they’re worth comparing.
Loans
If you’re about to become a student, it may be possible to borrow money through the Student Loans Company to cover the cost of your course as well as the associated costs of studying, from accommodation to transport, all with a preferential repayment scheme.
Many of the High Street banks also have accounts that are especially designed for students and some may include the opportunity to apply for a student loan. Try to manage your money wisely in general, that way you can demonstrate to your account provider that you’ll probably be careful if you’re given a loan in the future.
You could also check out comparison sites for loans for students to see what’s available in the market.
Before applying for any loan, work out how much you really need to borrow and try to keep it to a minimum. Then check what the repayments amounts would be over the length of the loan. Be absolutely sure that you’ll be able to make that commitment before you sign up to it.
Overdrafts
Depending on whether or not you have a reasonable credit rating, your bank account may come with an overdraft. This is a line of credit attached to your account that you can dip into whenever your own money runs out. This can be really useful to have in place, because if you inadvertently become overdrawn, you’d normally have some penalty fees to pay.
An overdraft could also help you cope with those more expensive than usual periods. Just try not to use an overdraft from month to month – pay it off as soon as you can to avoid unnecessary fees and building up a debt.
Savings Accounts
If you’re lucky enough to have spare money, try not to just blow it on stuff you’ll look back on as a waste of cash. Instead, stick it in a savings account – where it could grow a little. Savings accounts that lock your money in for a certain amount of time before withdrawing it often pay you better interest rates than those that allow you to take money out whenever you want.
Accounts that lock up your savings are sometimes accessed via a passbook. This could be good thing, as it means you can only get the money out when branches are open. That means withdrawals are usually more considered – and not on a whim whenever you feel like it via a debit card.
Good Current Accounts For Students And Young People
There are usually some pretty decent deals out there for young adults, because banks believe that if they catch you early in your life, you’ll stick with them through inertia. And that’s why they’ve been known to offer all sorts of freebies to get you to sign-up, especially if you’re a student and will therefore have a good chance of ending up in a well-paid job.
Past incentives have included everything from student railcards to loyalty cards entitling you to discounts at restaurants. Although these deals can be attractive, make sure that you don’t overlook invaluable features such as an overdraft. But whatever overdraft limit you’re given, be sure not to go over it or you could face some pretty stiff penalties.
Any account that includes credit features (including an overdraft) will involve you having to be credit scored. But if you’re a young adult, this isn’t always an easy process as you may not have developed a track record yet. This can make things really awkward, especially if you urgently need an account for your Student Loan, or a place to accept wages or benefits.
There are excellent alternatives to a bank account though, such as some of the accounts that come with prepaid cards. Some offer most of the features that you’d expect from a High Street bank account, but with some extra features on top. But the real beauty is that as long as you’re resident in the UK and aged 18 or over, you’re pretty much guaranteed to be approved to open one.
Let’s be honest, basic financial matters are rarely interesting, this short guide could help you get on the right path – and that could save you from some desperately dull times.
Sources:
http://www.investopedia.com/terms/a/apr.asp (2014)
Applying For Credit Products
Sooner or later you’ll probably need to pay for something urgently that your savings alone won’t cover. Unless a friend or relative can give you a loan, you might want to enter the world of credit.
There are quite a few things that could affect your credit application, including:
- Taking out credit in the past and not paying it back, or you’ve been late with the repayments
- Not being on the electoral role, as this is checked to prove you’ve given your correct address
- Bouncing Direct Debit payments, as this could make it look like you have difficulty managing your money
- Not having a credit history. That’s because it’s hard to judge if you’re credit worthy if you’ve never taken out a loan in the UK. This can be a real pain for newly arrived immigrants
If you decide to apply for any form of credit, the chances are that the lender will ask a Credit Reference Agency to give you a credit score. The Credit Reference Agency will take all the points outlined above into account when compiling your report, along with details of any existing outstanding debts you may have.
Don’t panic if you haven’t had a chance to build up a credit history yet - it’s still possible to improve your chances of getting a loan. Start by checking you’re on the electoral role and that your details are correct. Try applying for a bank account or prepaid card and once you’ve built up a good relationship with the provider, see if you can get an overdraft. Because this is a form of credit, this represents a good opportunity to start building a credit record. Also look out for prepaid cards and credit cards that can provide credit building features.
Meanwhile, pay all bills on time and once you have opened an account, don’t stray overdrawn. And try to avoid making multiple applications for credit – especially if you keep getting turned down. You could check with one of the Credit Reference Agencies to see if all your good works are improving your credit history – and whether you’re now likely to be extended offers of credit.
To help you to compare how competitive (or not) a credit offer is, all credit product offers must show you the Annual Percentage Rate, or ‘APR’1. This shows the cost of borrowing a certain amount over a year, including any extra costs that the credit may entail, such as set-up fees. The lower the APR, the less the credit will cost you. However, different types of credit will have varying levels of APR. For example, a mortgage (loan to buy a home) will have a lot lower APR than a credit card. And a pay day loan will usually have a lot higher APR than a credit card.
There are various types of credit out there, but the most likely types you’ll come across if you’re a young adult are credit cards, loans and overdrafts.
Credit cards
These are particularly handy if you need to have a line of credit at your fingertips in case you need money ready to use in an emergency. This could be for anything from urgent repairs to needing to buy study material in a hurry. But this financial flexibility comes at a cost as credit cards can be a fairly expensive way of getting money. Try not to use a card on stuff you don’t really need – having a night out isn’t a financial emergency! It’s all too easy to steadily build up a debt that could become a struggle to repay. That in turn could damage any start you’ve made on building a decent credit rating. However, use credit cards wisely and they can be a valuable lifeline. There are plenty of credit cards out there, so if you’re in the market for one, they’re worth comparing.
Loans
If you’re about to become a student, it may be possible to borrow money through the Student Loans Company to cover the cost of your course as well as the associated costs of studying, from accommodation to transport, all with a preferential repayment scheme.
Many of the High Street banks also have accounts that are especially designed for students and some may include the opportunity to apply for a student loan. Try to manage your money wisely in general, that way you can demonstrate to your account provider that you’ll probably be careful if you’re given a loan in the future.
You could also check out comparison sites for loans for students to see what’s available in the market.
Before applying for any loan, work out how much you really need to borrow and try to keep it to a minimum. Then check what the repayments amounts would be over the length of the loan. Be absolutely sure that you’ll be able to make that commitment before you sign up to it.
Overdrafts
Depending on whether or not you have a reasonable credit rating, your bank account may come with an overdraft. This is a line of credit attached to your account that you can dip into whenever your own money runs out. This can be really useful to have in place, because if you inadvertently become overdrawn, you’d normally have some penalty fees to pay.
An overdraft could also help you cope with those more expensive than usual periods. Just try not to use an overdraft from month to month – pay it off as soon as you can to avoid unnecessary fees and building up a debt.
Savings Accounts
If you’re lucky enough to have spare money, try not to just blow it on stuff you’ll look back on as a waste of cash. Instead, stick it in a savings account – where it could grow a little. Savings accounts that lock your money in for a certain amount of time before withdrawing it often pay you better interest rates than those that allow you to take money out whenever you want.
Accounts that lock up your savings are sometimes accessed via a passbook. This could be good thing, as it means you can only get the money out when branches are open. That means withdrawals are usually more considered – and not on a whim whenever you feel like it via a debit card.
Good Current Accounts For Students And Young People
There are usually some pretty decent deals out there for young adults, because banks believe that if they catch you early in your life, you’ll stick with them through inertia. And that’s why they’ve been known to offer all sorts of freebies to get you to sign-up, especially if you’re a student and will therefore have a good chance of ending up in a well-paid job.
Past incentives have included everything from student railcards to loyalty cards entitling you to discounts at restaurants. Although these deals can be attractive, make sure that you don’t overlook invaluable features such as an overdraft. But whatever overdraft limit you’re given, be sure not to go over it or you could face some pretty stiff penalties.
Any account that includes credit features (including an overdraft) will involve you having to be credit scored. But if you’re a young adult, this isn’t always an easy process as you may not have developed a track record yet. This can make things really awkward, especially if you urgently need an account for your Student Loan, or a place to accept wages or benefits.
There are excellent alternatives to a bank account though, such as some of the accounts that come with prepaid cards. Some offer most of the features that you’d expect from a High Street bank account, but with some extra features on top. But the real beauty is that as long as you’re resident in the UK and aged 18 or over, you’re pretty much guaranteed to be approved to open one.
Let’s be honest, basic financial matters are rarely interesting, this short guide could help you get on the right path – and that could save you from some desperately dull times.
Sources:
http://www.investopedia.com/terms/a/apr.asp (2014)
Comments
Post a Comment