Most students have a student loan to pay for their course and so the idea of borrowing more money can be scary for some of them and possibly parents. It is worth understanding that not all borrowing is bad, but it is wise to take all borrowing decisions very carefully. As students have little or no income then their borrowing options will be limited but some shops may be willing to take the risk by allowing them a store card. These can be convenient but it is worth understanding more about how they work before deciding whether you should have one.
Student loans are very different to normal borrowing and it is important for students and their parents to understand this. Firstly, the loan repayments do not start until they graduate and they are earning enough to cover the cost of the repayments. This means that they need not worry about the loan while they are still a student. They also may not even have to repay the full amount that they borrowed. After thirty years the loans are written off and so any unpaid balance remaining does not have to be repaid. This means that it should not really be a factor when they are considering other loans. Once the student graduates, their student loan repayments will be taken out of their tax code so they will be paid automatically. This means that they will have a smaller income compared with those not having a student loan repayment to make. However, it will not be a significant chunk but will mean that they will have to be careful when taking on debt, to make sure that they have enough money to cover the repayments.
Store cards are a way of borrowing that is very similar to credit cards. You use the card to buy things in the store and then you can wait to repay it until the bill arrives. There are options when the bill arrives and you can either just repay a minimum balance, which usually just covers the interest and a little bit more or you can repay the full amount. Although the bill may not clearly state this, you can also pay any amount in between the two. If you do not repay the full balance you will be charged interest on the remaining balance. Interest on store cards can be high – usually higher than a credit card. This means that it could be that getting a store card may not be a wise idea for anyone that is not intending on repaying it in full.
Store cards are also limiting in that you can only use them in one particular store and any other branches or stores under the same parent company. This means that you might be tempted to only shop at that store so that you can use your card. There may be cheaper stores that you ignore for this reason or you may even buy more than you need because you have the card and you know that you will not have to pay for the items that you have bought immediately. However, on the plus side, if it is a store that you shop in a lot and your card allows you to get discounts and special offers then it could be worth it as long as you use it wisely. It is best to use a store card to take advantages of offers on items that you would have bought anyway and repay it in full when you get the bill so that you do not pay anything for it. Effectively you are then getting interest free credit. You do have to be well disciplined though to make sure that you do not spend more then you need. You can set up a direct debit to pay off the bill in full though so that there is no chance of your forgetting to do this.
It is therefore not a straightforward decision as to whether a student should get a store card. Although the student loan has no bearing on the decision, they still need to be aware that a store card can be an expensive way to borrow money. There might be better ways to borrow available to them and it is well worth comparing the different costs of borrowing to see whether there are cheaper ones. It is also wise to think about the fact that students have no or limited income which means that they may not be capable of easily repaying any debt that they take on. As lenders will see them as a higher risk; due to their limited income, they may also find that they only get offered loans at a very high rate of interest which can mean that they will be extremely expensive.