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Being a student typically means your finances are limited. You’re in school and don’t have the time to dedicate to a full-time job. Not to mention, school itself is also expensive and your tuition needs to be paid for one way or another.
As a student, you probably find yourself completely maxed out when it comes to finances. And even if you’ve taken out a student loan to pay for tuition, you probably still find yourself with very limited funds to do anything else other than study.
So, what’s a broke student to do?
Luckily, there are loan options available for students who are strapped for cash. No matter what you need the extra funds for, a loan can really help you out.
The question is, how do you get approved for a loan as a student?
Reasons Why It’s Tough to Get a Loan as a Student
If you’ve started looking into getting a loan as a student, you may have quickly realized that it’s a lot tougher than it seems. Here are just a handful of reasons why students may find getting approved for a loan rather difficult.
Your Credit is Limited – or Non-Existent
As a student, you probably have very little or no experience with credit. In order for lenders to approve you for a loan, you’ll need some sort of credit for them to base their decision on. Lenders usually look at a borrower’s credit score and credit history before approving a loan, which tells them what type of borrower the applicant will be.
Wondering how the length of your credit history affects your credit score? Look here for the answer.
While a bad credit score is not good for a loan application, neither is no credit at all. You have to have some amount of credit in order for lenders to assess your application. With no credit at all, you could find yourself without a loan.
Building Credit is Difficult
So now that you know why having credit is important, you may want to take steps to start building it. But establishing credit can be very difficult too. The best way (and often the only way) to build credit is to take out a credit card and make timely payments every billing cycle.
The thing with credit cards is that if you have a tendency to overspend, you could find yourself in a difficult position to repay whatever you’ve spent. If you’re not diligent with money – or don’t have much of it at all – having a credit card at your disposal can prove to be dangerous and can actually hurt your credit.
Read this to discover ways of increasing your credit score without increasing your credit card debt.
Getting a Credit Card is Tough
So you’ve decided to take out a credit card, but how will you get approved for one if you have no credit? It’s like a catch 22 – you need credit to build credit, but can’t get credit without credit!
Here are some lessons you should learn if you’re going to be a credit card user.
How can you build credit from the ground up if you can’t get approved for products that are designed to help you build credit in the first place?
Traditional unsecured credit cards require you to have decent credit and a certain income to get approved for them, but without either of these, you may find yourself having to look for another avenue to take.
Want to know about secured and prepaid credit cards? Check this out.
You Don’t Make Enough Money
As we just mentioned, a certain income is typically required to get approved for a credit card. As a student, you probably don’t have a job. And if you do, it’s probably part-time and doesn’t pay you enough to qualify you for a credit card.
So, what can you do to build credit and get approved for a loan?
Ever wonder what the true cost of borrowing is? Take a look at this infographic.
Get Someone To Be Your Guarantor
Sometimes the best way to ensure loan approval is to have a guarantor sign the loan along with you. But getting a guarantor is an often overlooked way for a student to get approved for a loan.
A guarantor is an individual who guarantees to pay your debt if you ever default on your loan at any point. If you miss any payments, the guarantor will then promise to step in and make the payments on your behalf. Usually, getting a guarantor is done when the primary borrower has credit issues. And in the case of a student who probably has no credit established at all, having a guarantor sign the loan may be the ideal approach to take.
The role of the guarantor is solely to promise that the loan payments will be made in order to get loan approval.
When choosing a guarantor, consider the following:
- Choose someone you trust, such as a parent – Ensuring that the guarantor is trustworthy is crucial, as you want to make sure the individual can be depended on if you ever fall on hard times.
- Make sure your guarantor is in good financial standing – Only people who have solid credit and a healthy income should be considered to fill this role.
- Find the right lender to work with – Not all lenders necessarily approve of working with guarantors, so be sure to shop around and find a lender who is willing to approve a loan with a guarantor’s signature on it.
Does a guarantor loan sound appealing to you? Here’s how you can get one in Canada.
How a Student Can Benefit From a Guarantor Loan
If you can’t get approved for a loan because of your lack of credit or minimal income, a guarantor loan can prove to be a real life-saver. Here are just some of the ways in which a guarantor loan can help students like you.
Gain access to funds needed that you might not have been able to get on your own. This is by far the biggest benefit to guarantor loans and is the most common as well. Anyone who can get a loan on their own would probably not consider getting a guarantor. But if you’re strapped for cash and can’t secure a loan on your own accord, a guarantor loan can mean the difference between loan approval and rejection.
Need to know if instant loan approval is possible with bad credit? Find out here.
Get a lower interest rate. Maybe you’re actually able to get approved for a loan, but your credit score is not adequate enough to help you secure a low-interest rate. Lenders typically award high credit borrowers with a lower interest rate, which makes the overall cost of the loan much more affordable. On the other hand, bad credit borrowers are usually given higher interest rates – if they’re even approved at all – which can make the loan cost much more in the long run.
With a guarantor loan, you may be able to get a much lower rate. If the individual acting as your guarantor has a good credit score, you may be able to piggyback off of them and land a lower rate for yourself.
Build your credit score and history. As mentioned before, it can be nearly impossible to build credit without the right tools, such as credit cards and loans. Building credit involves having credit that you make payments against. By taking out a guarantor loan, you’ll have access to a financial tool that will provide you with the opportunity to make timely payments and therefore help you build good credit.
Trying to rebuild your credit while you’re in debt? Try reading this.
Help get approved for loans on your own in the future. Once you’ve had one loan on your track record that shows your responsibility and ability to make timely payments, you’ll have established some credit and good credit at that. In the future, you’ll then be able to get approved for loans on your own without having to depend on a guarantor.
Check out this infographic to learn how your credit score is calculated.
No Credit Score Needed With a Guarantor Loan
One of the best things about a guarantor loan is that the guarantor’s financial standing is more important than that of the borrower. This is particularly awesome for students who have not had the time nor the chance to build or grow their credit history while in school.
Your credit score might not be that important for a guarantor loan because you’re relying on the credit score of the guarantor to get approved, but your credit can definitely improve over time with the help of a guarantor. That way you’ll have a much easier time securing a loan on your own on in the near future, as we’ve already mentioned.
If you think a guarantor loan is the right choice for you, be sure that the lender you work with reports to one of the main credit bureaus. If not, all of your efforts will be for naught.
The key is to have your payments reported to the credit bureaus, which is where your credit score will be developed and recorded. Then, future lenders will request information from the credit bureaus to check your credit score and history before approving your loan application.
For some more information about credit reporting agencies, click here.
What Types of Loans Can Have a Guarantor?
There are several types of loans that allow a guarantor to sign them. In fact, just about every loan allows a guarantor to be involved to help the primary borrower get approved, including the following:
- Auto loans
- Personal loans
- Debt consolidation loans
That said, it’s important that you work with a lender who is well versed in guarantor loans. Even if they may offer them, you still want to deal with a lender who has plenty of experience with these specialized types of loans.
Also, guarantor loans should only be considered if you’re actually financially capable of making the payments on your own. If your income is substantial enough to support the payments, then a guarantor loan may be a viable option for you. If not, you shouldn’t take out this type of loan – or any other type for that matter – until your income is sufficient enough to support the payments.
Ready to Apply For a Guarantor Loan?
After assessing your finances and determining that a guarantor loan is for you, your next step is to choose the right person to act as your guarantor. Once you’ve chosen the right individual, it’s time to look for the perfect guarantor loan for you. Loans Canada can help guide you to choose the right guarantor loan for your situation.
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