How Does The Student Loan Work: A student’s budget is often high depending on the cost of studying at certain schools. Thus, despite the support of parents and possible public aid (housing allowance, study grants, etc.), it is sometimes necessary to take out a loan to be able to make ends meet.
Most banks offer specific loans reserved for students.
Student loan: conditions for obtaining
Student loans offered by banks are particularly aimed at young people aged 18 to 25. To be eligible, the student must be enrolled in a higher education establishment. Regardless of the nature and duration of the studies pursued: BTS, university, grandes écoles, etc.
The student will also have to provide parental or third-party guarantees and possibly take out death and disability insurance to be able to obtain their loan (most of the banks require it).
How to choose the right student loan and at what price?
Student loans are granted at a particularly attractive interest rate, on average 2 to 3 points lower than that of traditional consumer loans. The amount depends on the student’s needs, the duration of their studies, and their repayment possibilities once they have entered working life. This amount can vary from €800 to €30,000.
A loan to finance your studies or to use freely
The borrower is not required to justify his use of the borrowed sums. They can be used to finance your studies, to cover everyday expenses (rent, deposit, transport, etc.), or to finance the acquisition of capital goods.
Some banks also offer progressive release, meaning funds can be released a little each year, instead of being made available all at once. This formula is interesting because the funds are paid following the student’s real needs. The total cost of credit is then lower because interest only accrues from each release of funds.
A student loan is repaid after studies
The method of repaying student loans is specific. Reimbursement will only begin at the end of a period called “deferred repayment” or “franchise period”. This deferral allows the student to repay their loan only once their studies have been completed and a stable job has been found.
The duration of this period therefore corresponds to that of his studies with a small margin for greater flexibility. Two deferral formulas exist: partial deferral and total deferral.
- With a partial deferral, the borrower only pays the interest and the insurance contribution.
- With a total deferral, he only pays the insurance. At the end of his studies, the borrower repays the entire loan. This second solution seems more attractive but it is also more expensive because during the deferral period, the interest due each year is added to the amount of the capital borrowed and in turn produces interest. Banks generally limit the total duration of the loan to nine years, so the longer the deferral period, the shorter the repayment period.
Early repayment of the student loan
Please note that it is possible to repay in advance at any time, without giving a reason or proof.
However, from May 1, 2011: early repayment compensation may be provided if the amount reimbursed is greater than 10,000 euros over 12 months, and this compensation may not exceed:
- 1% of the credit amount if the remaining term of the credit is greater than 1 year,
- 0.5% if this duration does not exceed one year.
Under no circumstances may any compensation exceed the amount of interest that you would have paid between the date of early repayment and the end date of the contract.
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