Using credit to fund school expenses

19 Jan, 2020 - 00:01 0 Views

The Sunday Mail

Back to school is an exciting period for many families. While prominence is typically given to high school learners and children starting foundational phases, professionals also use this time to enhance their skills through further education and training.

A new school year has financial implications as families have to juggle expenses like registration fees, uniforms, books, travel and accommodation in some cases.  Families that are not in a financial position to fund education expenses often rely on unsecured credit to supplement their budgets.

While credit can offer timely relief at this time of the year, it’s important for parents and guardians to do their homework before signing-up.

Student loans

A student loan can be used to fund studies from any registered tertiary institution. The parent or guardian gets into a contract with the bank and is liable for paying the loan.

The loan is subject to credit and affordability assessments, which determines how much you qualify for, but has huge benefit for customers as capital repayment only starts on completion of studies and interest rates are generally lower to promote this form of credit.

Personal loans

For most people, a personal loan is a natural starting point to access credit from a bank as it does not require any security and can have relatively low monthly repayments of a fixed instalment amount.

While personal loans are relatively accessible if you qualify, you should weigh the pros and cons when considering a loan which has a longer repayment term (e.g longer than 60 months), as the total cost of credit can become high.

Overdraft/Fusion

An overdraft is a relatively inexpensive form of unsecured credit that is linked to your transactional bank account.  Rather than being a pure lending product, the intent is to provide a safety buffer for unforeseen expenses, emergencies or even just irregular needs such as those for back to school.

An overdraft also has a zero monthly fee if not used. The solution provides immediate access to cash and there is no specific repayment, but your salary naturally ‘settles’ the balance every month. —LOL personal finance

 Credit card

The purpose of a credit card is to help you to responsibly fund or supplement your expenditure, whether regularly or irregularly. It can have a budget capability catering for longer repayment periods on say fridges or other bigger items.  Credit cards (and Fusion cards also) are often the only form of payment accepted for car rentals, hotel bookings, etc, because of their ability to reserve funds at no cost to the customer. These cards typically also offer protection not just from fraud, but also from non-delivery of services or goods, which is very important for online purchases (and airline tickets!). They may also influence rewards and include travel insurance, depending on your financial services provider.

The key to getting maximum value from credit is to appreciate the purpose, benefits and cost of each credit solution.  You can generate significant value from credit products if you take time to understand the pros and cons of each solution.—LOL personal finance

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