Advice for someone embarking on credit pls?

iamsavingiamiam

Hello to everyone, and thanks from a long-term lurker for all the tips and warnings I've found here. :beer:

I have a question that I feel you all may be best equipped to answer. My daughter, age 21 is moving to a new place and wants to take out a loan for a relatively small amount (about £500 ) for furnishings/essentials. She has been working since she was 18 but on minimum wage and has never had credit of any kind. I accept that she needs to learn to budget (she's lived with friends before and done ok) and realistically in this day and age credit can be necessary, but I'm afraid that the bank will try to tie her into something with a huge interest rate, or want to lend her more than she needs (I suspect that for such a small amount they'll offer a credit card?).

I've offered to make her a loan myself, with her paying back by Standing Order so it's official, this will obviously not help her build a credit rating (but to be honest I don't think that's necessarily a bad thing!) but she won't get overwhelmed by interest either (tho I am charging her a little) or go over budget.

Would love to hear views as I probably haven't thought this through properly!

Thanks again,
wannabesaver

Snaggles

Banks tend to charge higher APRs for smaller amounts, so she could well end up with quite a high interest rate.

For me, I would feel that helping her learn to budget would be more important than building a credit history, so if you can afford to lend her the money, that would possibly be a good option.

Alternatively, what about finding creative ways that she could obtain furniture etc without getting into debt at all - I'm thinking of things like seeing if friends/relatives have anything going spare, having a look at Freecycle, that type of thing.

CLAPTON

the best advice you can give is for her not to get a loan atall. As Snaggles says maybe she could get stuff for nothing.
she needs to learn to save up for things and so avoid debt and paying interest.

if she wants to build up some sort of credit record then a low limit credit card is probably best and use it regularly but pay off the full amount each month by DD.

Storm

There are some credit cards out there with 0% on purchases for the first 6 months, and as she's never had credit she'll only get a small limit anyway. However, if you think she won't pay this off then it's probably not the best option as once the 0% deal runs out she could find herself with an astronomical interest rate!

How about encouraging her to save up £2 coins or something? That way she'll start to get a bit of money put aside, without impacting too much on her way of life.

What sort of timescales are you looking at? Perhaps if she could save a certain amount you could agree to match it as a loan?

Otherwise, see what you can lend in the interim so she's got time to save money up for stuff, i.e. if you can make up a mini kitchen kit (1 saucepan, wooden spoon, mixing bowl) etc that she can borrow for a year then she can save to buy nice new stuff at a later date.

Is it this sort of stuff that she needs or bigger furniture stuff? Trawl charity shops, car boots etc for kitchen essentials, bedding, rugs etc & check out your local freecycle too.

iamsavingiamiam

Thanks very much to all for the suggestions. She has managed to get quite a bit of stuff donated - a bed, a sofa and some bedding, so I'm not sure that she really NEEDS £500 She's been fairly good at saving in the past (she managed to save for a £600 plane fare in three months last year) but the deposit and all for the flat has cleaned her out at the moment (she's sleeping on a friend's floor at the mo so really does need somewhere now).

I'll try (diplomatically!) to find out what she needs and if a smaller amount would be possible. Thanks again for the suggestions. I really don't think she'd make more than the minimum payments on a credit card and then wail when the interest free period was over! :rolleyes:

thanks again

Lara44

Hello iamsaving

Why don't you download Martin's budget planner spreadsheet (at the top of this thread) and help her put her figures in. Then you can work out what is a good amount to pay you back, and help her to be aware of where her money goes and she is in control of the figures.

beanielou

She could always save with a credit union for a wee while & then get a wee loan from then.