Which is better, to use overdraft facility or student loan?

michaelhodinh

Hello everyone,

I am currently a UK student with a student bank account with Halifax. I understand they have a 0% overdraft facility, though I have never had to use this as I only use the money given to me from my student loan (studentfinancedirect.com), which happens to be the maximum loan amount available.This student loan has an interset rate set at the rate of inflation which begins pretty much as soon as you graduate.

So which would be a better option, to continue using up the money from my student loan or to use my overdraft facilty?

Your help is much appreciated!

:money:

Paul_Herring

Use the overdraft until you reach (say) 75-90% of your overdraft, in the meantime stick the loan in a savings account. Then start using the savings/loan when you 'run out' of overdraft.

In the meantime, see if you can get a part time job, so you need to use as little of both overdraft and loan as possible.

Oldernotwiser

The interest on your student loan starts as soon as you take it out, not when you graduate.

[Deleted User]

I would say that once you get your loan, there is no difference between "Spending the loan" and "spending the overdraft". You still have to repay the loan, and you still have to repay the overdraft. What you should not do is spend more money than you have. The overdraft is not your own money. Note that putting the overdraft in a savings account is not the same as spending it.

I recommend watching Martin's video of a presentation he did to LSE students (it's on YouTube) where he says that the student loan is the best type of long term debt. Yes, you have to pay interest, but the interest you can receive from investing it means that it is usually far better to keep the loan for as long as you can, rather than pay it off quickly.

What I think you should do, is to open a savings account with easy access - some make you give notice before withdrawing - you don't want that. Ideally, get one with a card that you can use at a cash machine. Then put all your money from the loan into the savings account, and the money from the overdraft until you have about £250-300 left before you reach your limit. (So if you have the £3000 overdraft, put say £2700 of it into the savings account.) You then spend using your student account, making sure not to go over the limit, and top up from your savings account when you need to - be it every week or every month. Try to keep as much as possible in the savings account.

You can also get a credit card (Halifax has a student one) so that you don't actually have to pay for anything you buy until the end of the month. Why is this good? Because it means that you know exactly how much money to take out of your savings account, and cannot go past your overdraft limit on your student account. (So long as you're paying attention.) Be sure to pay off the full amount each month though!

I hope that makes sense. If you think I'm completely (or even just a bit) wrong, please tell me because this is what I'm doing!

UPDATE: If you do get a savings account, try to find out what banks/building societies have a branch in your area. It will be far easier to open the account, and to deposit/withdraw money in the branch. I have an account with a building society that does not have a branch near my uni, which means that while I can withdraw using my card, I have to post cheques in order to deposit.