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Interest rates are cheaper and you are re­spon­si­ble for the re­pay­ment any­way, writes

CityPress - - Business -

I re­cently met a woman who had taken on a R50 000 personal loan from a bank to pay for her daugh­ter’s univer­sity fees. When I asked her why she had not opted for a stu­dent loan in­stead, she said she felt that she was re­spon­si­ble for her daugh­ter’s ed­u­ca­tion and that she did not want her daugh­ter bur­dened with debt. What she did not re­alise was that she could have taken out the stu­dent loan on her daugh­ter’s be­half, and at a much lower interest rate than she was pay­ing on her personal loan.

City Press spoke to several banks to find out what their poli­cies were on stu­dent loans. One im­por­tant fea­ture of a stu­dent loan is that it car­ries a lower interest rate than a personal loan, and an­other is that a par­ent or spon­sor has to sign surety if the stu­dent is not earn­ing an in­come.

Liesl Lourens, se­nior quan­ti­ta­tive an­a­lyst at Ned­bank, says the rate charged on a personal loan will be based on the credit risk pro­file of the cus­tomer and can be as high 28% (21% above the repo rate). A stu­dent loan will be 12.5% (2 per­cent­age points above the cur­rent prime interest rate).

Ac­cord­ing to Jan Mo­ganwa of Absa re­tail and busi­ness banking, Absa will charge up to the max­i­mum of 28% on a personal loan, but its stu­dent loans are is­sued at the cur­rent prime interest rate of 10.5%.

Phil Pen­ling­ton, head of sales and mar­ket­ing for FNB loans, says the min­i­mum rate on a personal loan starts at 15%, while the min­i­mum rate charged on a stu­dent loan is 10.5% with a max­i­mum rate of 6 per­cent­age points above prime.

Zanele Mbere, head of personal lend­ing at Stan­dard Bank, says the interest rate charged de­pends on dif­fer­ent fac­tors, such as whether the stu­dent is ap­ply­ing to study to­wards a di­ploma, de­gree or cer­tifi­cate, as well as the year of study. Stan­dard Bank’s interest rate works on a slid­ing scale, mean­ing for every year passed, the rate re­duces by 1%.

All banks re­quire a par­ent or spon­sor to sign surety for the loan. Ned­bank and Stan­dard Bank re­quire the loan to be in the name of the stu­dent for it to qual­ify as a stu­dent loan, but if the stu­dent does not have an in­come, the par­ent must sign surety on the loan.

Absa and FNB enter into agree­ments with the par­ent or spon­sor di­rectly and the loan is is­sued in terms of the prin­ci­pal debtor’s name.

Ac­cord­ing to Pen­ling­ton, the in­di­vid­ual who signs the con­tract (the ap­pli­cant) re­mains fully li­able for the re­pay­ment of the stu­dent loan. In cases where the stu­dent and the prin­ci­pal debtor are dif­fer­ent peo­ple, the stu­dent is not li­able for pay­ments.

The par­ent must have a good credit record and must be able to af­ford to re­pay the loan, although the same would ap­ply for a personal loan. Stu­dent loans are is­sued for each year of study – so you need to reap­ply for a loan each year.

With a personal loan, the cap­i­tal/prin­ci­pal debt and interest form part of the re­pay­ments from the first month and must be re­paid within the agreed time frame. In the case of a stu­dent loan, only interest must be paid dur­ing the course of study and the re­pay­ment of the cap­i­tal/prin­ci­pal debt must be­gin six to 12 months af­ter the stud­ies have been com­pleted. The loan must be fully paid within four to five years.

With a stu­dent loan, most banks of­fer a six-month grace pe­riod for the stu­dent to find a job, but this can be ex­tended to up to 12 months as long as the interest on the loan is ser­viced. If the stu­dent needs to com­plete ar­ti­cles, an in­tern­ship pro­gramme or com­mu­nity ser­vice, proof of this needs to be given to the bank. Dur­ing the pe­riod of in­tern­ship, ar­ti­cles or com­mu­nity ser­vice, interest must be ser­viced on the loan.

As a par­ent or spon­sor, you can de­cide if you want to just pay the interest or if you want to re­pay the interest as well as the cap­i­tal, which is what would be re­quired with a personal loan.

Ac­cord­ing to Absa, the av­er­age an­nual loan amount re­quested is R55 000 and the av­er­age du­ra­tion of study is 35 months. On av­er­age, the loan is paid back within 40 to 45 months af­ter the stud­ies are com­pleted.

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