Credit Union Education Loan for UK course, likely to remain unemployed.

Hi,

I'm a first time poster here hoping that someone might be able to answer some questions I have regarding credit unions.

I've been accepted onto a masters course in the UK beginning September 2012 and I think that a credit union loan might be my best option to fund it.

Unfortunately, I'm currently unemployed and, being honest, find it unlikely that I'll find work any time soon given the way things are going here. I do have shares presently in the credit union, and I am managing to save a little each week/month so that I hope to have roughly 3,000 in shares by the time next March comes around and I approach the credit union regarding a loan of approximately 10,000. I will be able to find a guarantor if needed.

What is the likelihood of the loan being approved given the share to loan ratio, and the fact that I may still be unemployed?

Thanks in advance for any advice!

Reports of late (including today) suggest that, on foot of Central Bank instructions, some (many?) CUs are tightening up on their lending policies. As a general rule of thumb CUs may advance up to 4 times your share capital in a loan but it's not guaranteed and I presume that, like any lender, they will be looking at a borrower's ability to repay the loan on a specific schedule. In some cases they may also encourage (or insist on?) the borrower putting some money in shares while also repaying the loan even though this is not necessarily in the customer's best interests. Why not just sound your CU out? Better to know sooner rather than later if this is a runner.

Thanks for the advice ClubMan. I might as well contact them now and see what the story is.

The factor that I'm most concerned with is my perceived ability to repay the loan as you point out, given my employment situation. As it is an educational loan, the credit union could hardly be expecting a student to make payments during their period of study, could they?

If anyone else has more information or even experience of being in this position all advice is greatly appreciated.

bobzimmerman said:

my perceived ability to repay the loan as you point out, given my employment situation.

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You say that you have been saving a bit in recent times - how much and can you afford this in loan repayments while studying?

As it is an educational loan, the credit union could hardly be expecting a student to make payments during their period of study, could they?

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Have you researched any other funding/income options that might be available while studying?

I have saved a little over 2,000 right now. The vast majority of this has been sitting in my account unused for a while, though I've had a standing order of 5 Euro a week going in. From the end of this month on I'd be hoping to save perhaps 200 a month, depending on how frugal I can keep things. Going along these lines, I'd roughly have 4,000 in shares by the end of next August when I would be potentially drawing down the loan of 10,000.

I have looked at other options but this seems the most obvious. I am not eligible for any state/grant/funding as I already hold a B.A. and M.A.. I am eligible for a UK bursary but this only partially covers fees, and that isn't exactly a "gimme" as there will be competition for it.

As to whether I could afford repayments while studying, it's doubtful unless I get part time work which I couldn't guarantee when enquiring about the loan. I hope to find some part time work, but I imagine that I would find it difficult to may full repayments every month. I could possibly pay the interest, if that's an option?

If you can't afford to make repayments (significant or at all) while studying then I personally would imagine that your chances of getting a loan from any lender would be slim but maybe the CU will say otherwise. But even if they did lend you €10K against collateral of up to €4K with no or low repayments while studying is that a prudent course of action if you have no definite plan or ability to repay the loan? (Sorry if that sounds harsh but just trying to tease out the practical issues here!).

By the way if you did have €4K in shares - let's say paying a now generous CU annual dividend of 1% - and managed to borrow €10K - let's say at 8% although probably higher in practice - then you are effectively borrowing €6K at (very roughly) 13% which may not be that competitive. On the other hand, once you had the €10, you could tell the CU to set your €4K shares off the €10K loan balance to reduce it to €6K from then on and then adjust either the term or the ongoing repayments to take account of the new lower loan balance. See here...

Harsh is fine. I don't particularly want any flighty ideas of easy money. I am not saying for certain that I won't be able to make any repayments during the 12 month study period. If the repayments were relatively low - around 150 per month - then they would be manageable if I could find some part time work. However, this would not be definite when I go in to ask about the loan, and it would make life much more comfortable if this money was not redirected from living expenses. Also, I have seen that there may be an option to make interest only payments. I'm not sure how accurate this is.

Regarding having a plan to repay the loan, I plan to find work after I finish the degree. Surely, this is the same with anyone who goes to take out an education loan.

My local CU is now giving out education loans at 6.2/6.5%. I'm not sure if trying out the banks would be a viable option. I have had student loans with them before, and my credit rating with them would be good. I just thought that CUs had a significantly different modus operandi from the banks - not that different, they both need to make profit - in that they might be more likely to give a person a chance and considering that I would have shares and a guarantor going into an education loan they might give me one.

bobzimmerman said:

I am not saying for certain that I won't be able to make any repayments during the 12 month study period. If the repayments were relatively low - around 150 per month - then they would be manageable if I could find some part time work.

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For what it's worth - €150 would be the repayment on a €10K loan @ 6.5% p.a. only if the term was about 7 years and I believe that the CU normally prefer shorter terms - e.g. 4 years or less.

Also, I have seen that there may be an option to make interest only payments. I'm not sure how accurate this is.

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I'd be surprised if this was an option from the outset but maybe I'm wrong.

My local CU is now giving out education loans at 6.2/6.5%.

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I forgot that CUs sometimes offer lower rates for education loans. Maybe they also have other policies (e.g. deferring repayments or allowing interest only repayments) for such loans too? Your own CU's website or policy documents may clarify their lending policies.

At this stage it's probably best to approach them about your situation and see what they might be able to do for you? Others here may also have suggestions/advice. Good luck.

I think that making some immediate inquiries might be the way to go. Their website isn't very specific on much to be honest.

Thank you for the advice.

I do agree with this fact that some inquiries should be there.

OK, it's been a while since I last posted so in case anyone has been waiting for an update or is simply curious I thought that I'd let them know how I got on.

I called into my local CU branch to inquire about the possibility/conditions of an education loan and spoke to an officer/advisor.

I was told that that particular branch - at least - no longer operates loans along the lines of loan to share capital ratio. So, rather than asking for a 10,000 loan against my 4,000 shares, I could apply for 6,000 instead.

I was also told that if I could provide a guarantor the fact that I would be unemployed prior to the commencement of study would not be a major factor.

Finally, regarding repayments, I was informed that they were reasonably flexible with payments and that interest only payments over the period of study could be an option.

All in all, I was quite happy with my visit. I still hope to have picked up some work by the time I apply proper for the loan but it seems that even if that's not the case I'll still have options.

I have to add as well that they were most pleasant and helpful.

about 13 years ago I did a course over 1 academic year, costing me 2,500 pounds Irish. I got a CU loan for the 2,500, it seems like so little money now, but it was quite a lot back in 1998. The college allowed me to pay in two or 3 installments at no extra charge so I didnt have to drawdown the full loan and pay full interest from day one. If/when you get your CU loan approval for your 6-10k I don't think you have to drawdown it all at once, this would reduce your interest charges somewhat.