Leaving the comfort of home to begin your new adventure to college can be daunting. All of the advance preparation alone can be stressful, with so many choices to make and goals to reach in a short period of time. Once your hard work pays off and you’re accepted into your new college, there are still plenty of things to learn.
The financial aspect of college can often be one of the most tricky things for new students. Particularly if you haven’t had any opportunities to manage your own money in the past, suddenly having to manage loans, rent, bills and taxes can feel a bit like being thrown in at the deep end. Part of the struggle comes from the terminology used when you come to apply for things such as loans or even just open a savings account. Fortunately, we’ve put together a list of the top terms you’ll need to know as you begin this new chapter in your life.
Default
A default occurs when you fail to make a payment on time for a financial obligation. This can happen if you fail to make your student loan payment, and has serious consequences. Defaulting can have a significant impact on your credit score, and could even lead to your lender sending collection agents after you if it happens multiple times.
Credit score
Your credit score is a number that represents your financial stability. It takes into account many different factors in your life, from your credit card usage to whether you’re registered to vote and your previous address history. Potential lenders, and sometimes landlords, use this score to determine how likely you are to make payments on time.
Interest
Before we get into the different types of interest, you’ll first need to have an understanding of what interest is. The interest rate determines what the cost of borrowing is, or for saving, how high the rewards are on your investment. In terms of a student loan, for example, the interest rate is the amount you’re charged on top of the agreed amount until it is fully repaid. Interest can also be referred to as an APR, meaning the annual percentage rate.
Compound interest
Compound interest is something to watch out for, as it can add up much more quickly than other types. This kind of interest will be applied to the total amount of money, including any interest accrued over time. This can be helpful if it’s on a savings account, but for a loan, it can be dangerous. The longer you go without repaying the amount owed, the higher the interest will be. With it not only applying to the original amount loaned, but the new interest charges too.
Accrued interest
Accrued interest is the more common option, and can be much more manageable for things like student loans. This type is just the agreed rate that gets added to your loan, and it won’t count the additional interest towards future payments. It’s still important to be aware of, as a rate that seems small now can quickly add on thousands of dollars to your future repayments.
