December 13, 2021
The student loan is complex enough in itself, but it also comes with its own set of complex and sometimes difficult to understand terms.
So we've put together a little student loan dictionary for you, which includes all the definitions you'll need, so you can flex your muscles a bit in front of the banker (and, incidentally, really understand all the terms anyway).
We start very simply with the term. When a bank talks to you about the term of a loan, it means the period over which you will repay your loan.
Then there are the monthly payments: this is the amount you have to pay back to the bank each month. That's easy, isn't it? But be careful, the monthly instalments take into account: a part of the amount you borrowed, a part of the interest and a part of the insurance (if you chose to take out an insurance policy, as it is optional, but recommended).
In conclusion, a monthly payment = part of the amount borrowed + part of the interest (+ part of the insurance).
Let's move on to the due dates, which are also quite simple: they correspond to the date on which you have to pay your monthly instalments (i.e. every month, on the same date).
For example, if you decide to repay your loan over 5 years, which is 60 months, you will have to pay 60 instalments.
Now let's talk about the guarantor: this is a person who makes himself legally responsible for paying your monthly instalments (a small, subtly placed revision) if you are unable to do so.
And it is very often at this stage that the bank refuses to grant a student loan. Either because :
If you are in one of these cases, Smarto can guarantee your student loan. You can find more info right here and ask us your questions here.
And the last of this first part is called: disbursement.
This is the best part of the loan (or you panic a bit because you've never seen your account with so many zeros): it's when the bank delivers the amount you've borrowed to your account.
For this part, which may seem a bit more of a headache, we'll start slowly with the fixed borrowing rate.
In simple terms, this is the interest rate of your loan. It will therefore allow you to calculate the cost of your loan.
Handy when you compare offers: the lower it is, the less interest you will pay, so the better.
We continue with the APR, which means annual percentage rate of charge. And then you say to yourself, I understand even less, no worries, we'll explain:
Basically, it is the rate that takes into account all the costs incurred by your loan (interest, administration fees, insurance costs or fees paid or due to an intermediary).
It is expressed as an annual percentage of the sum borrowed and it is above all on this that you should base your choice, because it encompasses everything (we imagine that you are beginning to understand: the lowest rate = the most interesting offer for you).
One last thing to conclude this second part: the annual effective insurance rate ( AEIR ).
We have already told you about the insurance you can take out for your student loan. It is not compulsory, as mentioned above, but it ensures the repayment of your loan in case of death or partial or total disability (if you do not take out insurance and something happens to you, a relative will have to pay the loan back for you).
Well, the APR is the rate that will allow you to calculate the total cost of this insurance over the duration of your loan. And if you've been following along (we're sure you have), you probably already know that the insurance repayment will be added to the monthly payments.
Let's move on to the last part of this dictionary, and also the least cool, but somewhat obligatory: the refund.
You should know that the repayment of your student loan is divided into two parts: the grace period (during your studies) and the repayment period (usually at the end of your studies).
First, we'll tell you about the grace period, also known as the deferred repayment period.
During this period you are still a student, and you have the choice between two types of deferments:
In conclusion, during the deferment period you can either choose to start paying back a small amount every month or you can decide to pay slightly higher monthly payments during the amortization period.
And then we get to that famous amortization period, the one where you start paying back your loan (if you chose the full deferment, we're sure you already knew that since you're starting to be a pro at this stage).
During this period you have finished your studies, you have probably found a job, and you are therefore ready for working life! But with working life comes responsibility (unfortunately), and therefore the start of your monthly payments over the period you have chosen.
Finally, there is also the possibility of repaying your loan early, aka early repayment.
It can also be partial or total, i.e. if you have borrowed €10,000, you can ask to pay it back in full (if you have a large income, for example) or to pay back half of it, i.e. €5,000.
However, care must be taken if the amount repaid early is more than €10,000, the bank may claim compensation:
And lastly, it has to be specified in the contract.
There you go, you're now a student loan pro and you're ready to go around the banks looking for the one that will offer you the best rate!
And if you're still not completely up to speed, you can check out our article The Student Loan Guide which will help you see things a little more clearly and help you make your decision.
(If you get stuck on one of these definitions, don't hesitate to ask us your questions on the Smarties community ).
