You may worry, whether you are graduate or thinking about
doing a degree, that if you have a student loan then it could mean that you may
not get a mortgage in the future. It is good to think about your future when
you are considering a student loan and there are a lot of concerns about
student loans and it is good to make sure that you really understand how they
work and whether you should really worry about your future with regards to
borrowing. While there are no rules about who can and cannot borrow money, each
lender will have specific criteria when deciding who they want to lend to.
However, due to the way that student loan repayments work, they may not even be
aware that their potential borrower is a graduate.
How students Loans Work
Student loans are very different to standard loans and this means they can have a very different impact on your future. Firstly, they will finance a course that will hopefully enable you to earn a higher income and do a career that makes you happier. Then when you repay the loan, it is also very different to a conventional loan. You will only have to repay the loan if you are earning above a certain threshold and that means that you will not be short of money as it will just be a small percentage once it is deemed that you are earning enough. You will also only need to make repayments for thirty years after you graduate and then the remaining loan is written off. This means that you are not tied into a lifetime of debt and in fact you may never need to repay any of your loan. You will also repay through your tax code and this means that your loan will not show up on your credit record.
How they affect your credit rating
Normally having a loan will mean that it will show up on your credit rating. Then when you apply for other loans, potential lenders will see this and they will consider whether this might mean that you will not be able to afford the repayments on their loan. They may consider you to be a risk and therefore not lend to you or choose to only lend to you at a higher rate of interest. With a student loan it will not show up your credit record and so this will not happen. Any other borrowing that you have will show up though. Therefore, while you are studying it could be wise to think carefully about taking out other types of loans including overdrafts and credit cards. If you repay the credit card in full each month then you should be okay but an overdraft will not look good especially if it remains unpaid for a long time.
Should you consider a mortgage
You may still feel concerned about a mortgage as the lender will look at your income to see whether you can afford the mortgage. To calculate how much you can borrow they will look at your earnings before tax and so any payments that are taken out by your employer such as student loan repayments or work pensions and things like that will not show up. However, they will look at your general bank statements and see whether you have enough money each month to cover mortgage repayments. If you have already been paying rent, then it is very likely that you will be fine as you can use the money that you would have been paying out in rent to cover the mortgage repayments instead. Often mortgage repayments are cheaper than rent anyway. The amount you repay for student loans is also very small and so it would not really have a significant impact on your ability to repay a mortgage anyway. If you are earning enough money to have to pay student loan repayments and you are living within your means then you should be fine.
You do need to think hard about whether you will be able to
keep repaying the mortgage in the long run though. Make sure that you are
confident that you will have an income for the full term of the mortgage that
will allow you to be able to keep up with the repayments. It can be hard to
predict what you might be doing in the future but think about your career
plans, family plans and things like that and then you can decide whether this
is a sensible idea. Most people manage a mortgage along with their other
expenses but it is wise to make sure that you take one on that you will be able
to afford alongside the other expenses of owning a home such as insurance and
costs of maintaining it and decorating it.