How it differs from other loans
- The student loan is an unsecured loan. You do not have to provide an asset (e.g. a house or a car) as security that can be seized if you don’t make payments.
- How much you repay depends on your income rather than a pre-set repayment rate.
- Inland Revenue deducts repayments directly from your wages.
- Any interest is calculated in such a way as to ensure that no borrower's loan balance ever grows by more than the rate of inflation. Visit the Inland Revenue Student Loan website to find out more about how interest is calculated.
A loan which is not secured against any of the borrowers assets and hence is more risky than a secured loan. In order to compensate for this, the lender will charge a higher interest rate.
An asset is a useful or valuable person or thing. In financial terms it's an item that can be converted into cash such as bank deposits, shares or property.
Money paid in return for the use of money. If the bank is using your money (in a savings account) they pay you interest. If you are using the bank's money (via a loan), you pay the bank money.
Inflation - is the rate at which the prices of goods and services increase over time. The effect of this is to reduce the purchasing power of money. For example, if you could buy something with $1000 now, in one years time, you would need $1020 to buy that same thing (assuming 2% inflation).
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