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Taking out a loan during this economic climate

8 replies
Found 17th Aug 2010
Hey People,

A friend at work is going back into Further Education, as the job market is very slow at the moment and the course she plans to take is 4 years and has very good job security.

Now she is taking out a Professional Development loan with Natwest, but was slightly confused with either keeping the interest rate on the loan fixed or variable.

Fixed: 8.9%

Variable: 7.7%

Now with the economic climate at the moment, I can't see the interest rate going any lower nut only higher is so at a later date.

The amount she is borrowing I think is £20k and will start paying it after 4 years.

We were having a discussion at work and think it might be better to have it fixed?

I remember we have a few financial gurus here lol so thought I should take your opinion as well!

Thanks!

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8 Comments

Banned

will she not be able to get grants through her course, surely this will be a cheaper option

sassie

will she not be able to get grants through her course, surely this will … will she not be able to get grants through her course, surely this will be a cheaper option


Probably not if she's already undertaken a higher education course.

I can't see the interest rate going lower than now, but who knows what will happen over 4 years?

At hose rates (if they're the best) I'd be inclined to go with the fixed rate, as you are right, they can only go up from here.

tell her to look around for scholarships.

I would be inclined to go fixed due to the length of time involved and the fragility of the economy.


With a variable rate, if it were to go down it wouldn't be by much (although if it stays at 7.7% for the entire loan it's a fair saving) so you aren't going to win by a big margin. If, on the other hand, it were to rise there's a potential of owing a lot more interest if the rate rises sharply. Whilst I wouldn't expect to see the interest rate rise much over the coming year, as the government battle to keep a reign on inflation, 4 years is a long time in the financial markets and likely to be quite volatile

At least fixed you know exactly what you have to repay (and hence budget for) and the loss could be far worse than the win.

this is purely opinion and if I knew all the answers I'd be rich by now

Dave

Original Poster

Thanks so much for your replies people!

Yeah, fixed worked out better I guess. In regards to scholarships etc these are pretty limited as one of the forum members indicated that they are not if HE course has been taken. However, there are some available which she will apply for, however these are limited.

I thought fixed would be a sensible option but then if you take a risk sometimes you can make a significant saving!

But then guess security is far better than saving in these circumstances

The advantage of getting a fixed rate loan is that you know what it is going to cost you for the next few years..

It might be worth getting a fixed rate loan if you want to know how much exactly it is going to cost and make necessary arrangements..

With the variable rate you get a lower rate initally and then you need to take into account that the BoE Base rate is already 0.5 (its not going to go lower) so you variable rate interest is only going to go up..

Most people guess that it would go up to atmost 2% in the next two years so you would need to budget for the additional cost of the interest on the loan..

HTH

Tell her to phone student finance england 0845 300 50 90 you can get many grants from them even higher education plus loans at something crazy like about 2% its worth a phone call.
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