Students these days are not only smart and talented but also have the ability to push themselves beyond the comfort level and do excellently well in every field. Opting for a foreign university for higher education is a very common practice these days and can cost upto Rs. 1 crore and more and requires a loan. But choosing between personal and education loan to fund your child’s education is a tough task and needs a lot of attention, patience and thought process.
A Quick Glimpse of How Personal Loan and Education Loan Differ
|Personal Loan||Education Loan|
|Purpose||Can be used for funding education, tuition fee, accommodation and a lot more.||Can only be used to fund higher education.|
|Disbursement||Funds get deposited into your bank account.||Funds get deposited to your school/college’s financial aid office.|
|Moratorium period||It starts after the first month.||It varies from 6 months to 12 months of completing studies.|
|Potential lenders||Banks, private online lenders and credit unions.||Federal government, private online lenders and banks.|
|Tax benefits||N/A||The interest paid can be deducted from the annual taxes.|
Major Key Feature Differences between a Personal Loan and an Education Loan:
- Loan amount: Loan amount should be finalized after analyzing your financial condition. On one hand, if you opt for an education loan, the amount may vary from Rs. 50,000 to Rs. 1.5 crore and can only be used to fund your education. On the other hand, if you opt for a personal loan, the amount may vary from Rs. 50,000 to Rs. 50 lakh, depending on the lender you choose and your credit history. Apart from education, a personal loan can also cover other expenses like food, accommodation, etc. You can check your eligibility by using personal loan eligibility calculator before making the final call.
- Moratorium period: It is basically the time given to you to find a job so that you can start repaying the loan. No such period is offered when you opt for a personal loan as repayment of amount along with interest is paid from the very first month. But, a moratorium period of approximately 6 to 12 months is offered to the students if they go for an education loan, which saves them from an immediate stress of repaying the loan.
- Interest rate: The interest rate of a personal loan is usually higher than an education loan. The personal loan interest rate may range between 10.99% to 24% and an education loan interest rate may vary from 8.30% to 24% along with a concession of 0.5% that is available for girls. Also, if a student starts repaying loan during the moratorium period, he gets a concession of 1% in interest rate. Before finalizing your option, compare the interest rates at Paisabazaar.
- Loan tenure: If you go for a personal loan, the tenure would not be more than 5 years and in case of an education loan, the tenure would be between 8 to 10 years, which obviously will decrease the amount of monthly EMI.
- Guarantor/ collateral: If you opt for a personal loan, you don’t need a guarantor or collateral. And, if you opt for an education loan, you will need a co- applicant (parent or spouse) and a third party guarantor if the loan amount is above Rs. 4 lakh depending upon the lender you choose.
- Tax benefits: Tax benefits are offered from the day student starts repaying the amount if you go for an education loan. However, no such benefits are offered if you opt for a personal loan.
Common key Features Between a Personal Loan and an Education Loan
- Credit check: Both personal loan and an education loan requires a credit check before the approval process as your loan amount completely depends on your credit history
- Funded by private lenders: Many private lenders and online loan providers offer personal loan as well as an education loan.
- Unsecured loan: No collateral or any asset is required while opting for any of these loans.
- Installments and tenure: In both the cases, money is repaid as monthly EMIs within a fixed time period.
Personal Loan: Pros
- Use funds for multi- purpose: You are free to use the money you get from a personal loan to meet other expenses also as there is no restriction there.
- Easy to apply: While applying for a personal loan you don’t need any verification regarding your education and hence it only requires some basic paper work, which is hassle- free.
Personal Loan: Cons
- High interest: The interest rate offered with personal loan is usually higher as compared to an education loan.
- Immediate repayments: No grace period is offered as you will immediately have to start repaying the loan with interest rate after the approval.
Education Loan: Pros
- Lower interest: When compared to a personal loan, an education loan offers lower interest rate. If you qualify for a government-subsidized loan, you will have to pay even lower rates.
- Repayment flexibility: Education loan generally offers a longer repayment tenure that can go upto 20 years and have to be paid approximately after 6 months to 12 months of completing your education. This way, your monthly EMIs are less in amount and you are easily able to manage other expenses.
Education Loan: Cons
- Loan restricted to education: The fund directly gets deposited to your school/college’s financial aid office and cannot be used to manage other expenses.
- Might ruin your credit history: Due to any reason if you are not able to find a job after completing your degree or if your income level does not match in the right ratio with the monthly income, you will be in trouble. Such situations or defaults will ruin your credit history and the feeling of not able to manage your expenses will keep you under a lot of stress.
Now, the final call is yours. A personal loan can be a good option if you need to handle other expenses apart from just education. With a personal loan you will be also be able to manage your daily expenses without any inconvenience.
And, if you want more flexibility and lower interest rate for repayment, an education loan would be the perfect choice. With an education loan, you can focus on your education without having to worry about the instant monthly repayments.