Hard-pressed parents face headache of school costs
Back-to-school bills are a nightmare but desperate measures should be avoided, says Louise McBride
It's back-to-school time at the end of this month. As it now costs up to €2,000 a year to put one child through public school, parents who have not already done so only have about three weeks left to come up with that money.
Those sending more than one child to school face an even scarier bill. It costs €1,277 a year to send a child to primary school and €1,996 a year to send a child to secondary school, according to research published by Bank of Ireland Life and schooldays.ie last week.
So if you've got two children in primary school and two children in secondary school, you'll have to fork out about €6,546 this year to send all four to school.
With one in seven people now out of work, for many families, back-to-school costs have become a bigger financial headache than they were in the past.
Hard-pressed parents are exploring routes never before considered to raise the money they need to send their kids to school -- but they could be entering dangerous territory.
The recession -- combined with rising back-to-school costs -- has forced many parents to take out a loan to cover the costs of sending their children to school, according to Barnardos. Tread carefully if you go down this route though -- the interest charged on small bank loans usually runs into double digits and could be as high as 15 per cent. This means you could pay between €120 and €155 interest on a relatively small bank loan of €2,000.
If getting a personal loan of €2,000 -- what you'll need to put one child through secondary school for a year, avoid AIB as it is one of the most expensive banks you can go to for personal loans.
AIB charges 14.87 per cent interest on a personal loan of €2,000. If you repay that loan over a year, your monthly repayments will be €179.56.
You'll therefore pay about €155 in interest on the €2,000 loan if you repay it over a year -- which is almost a 10th of what you initially borrowed.
Permanent TSB is also one of the more expensive lenders. The least you can borrow from Permo is usually €2,500 and it charges 14 per cent interest on a loan of that size.
Bank of Ireland and Ulster Bank aren't much better. Bank of Ireland charges a variable interest rate of 13.4 per cent or a fixed rate of 14.8 per cent on a loan of €2,000 -- but only if you take that loan out online. Otherwise, the interest rates are higher. Ulster Bank charges a variable rate of 13.5 per cent or a fixed rate of 14.3 per cent interest on a €2,000 loan.
Although National Irish Bank (NIB) is one of the cheapest banks for small personal loans, its interest rates are still high and well above those charged by some credit unions. NIB charges a variable rate of 11.47 per cent interest on a €2,000 loan. Under that rate, the monthly repayments over a year work out at €176.88, according to NIB. The interest on that loan therefore adds up to about €120 after a year -- which is about a fifth less of the interest you'll pay AIB on the same loan. NIB, however, also has a more expensive fixed-rate loan, which charges 13.35 per cent interest on a loan of €2,000.
Avoid credit cards at all costs when paying for your children's back-to-school bills. As the interest paid on your credit card bill could be as much as six times what you're paying on your mortgage, the interest on a €2,000 loan could be almost €500 if you take that money out with your credit card.
Let's say, for example, you have Bank of Ireland's Classic credit card. If you withdraw €2,000 cash from your credit card account to cover the back-to-school bills of one of your children, you'll pay 21.36 per cent interest on that €2,000. If you don't pay anything off that bill, the interest adds up to €468.93 after one year, according to Ronan Coburn, a forensic accountant and banking consultant with The Bottom Line. That interest bill -- about a quarter of what you initially borrowed -- would almost cover the cost of a secondary school pupil's transport and uniform for a year.
If you have AIB's Click credit card, you'll pay 19.68 per cent interest if you withdraw €2,000 from your credit card account.
If you don't pay anything off that credit card bill, the interest clocks up to €429.39 after a year, according to Mr Coburn. If you had that €429.39 in your pocket instead, it would more than cover a year's school lunches for a secondary school pupil.
With interest rates of up to 188.45 per cent, money lenders are a definite no-no when it comes to borrowing money for any reason, including back-to-school costs.
Sunday Indo Business