Higher education pursuits are usually very costly, especially if you are planning to study abroad. While scholarships and family funds can help to offset some of the costs involved, many students and parents rely on loans for the remaining costs. Therefore, which loan is best suitable for your needs: is it an education loan or a personal loan? If you understand the differences between these education loans vs personal loans, you will not go wrong.
In this blog, we’ll explore the critical differences between education loans vs personal loans, their unique benefits, eligibility requirements, and how to apply for them. Let’s dive into this comprehensive comparison to discover which loan type is better suited for your financial needs.
Understanding Education Loan and Personal Loan
An education loan is an exclusive product that finances education at the cheapest price. The loan always carries special features, usually available for students, like very low interest rates, extended repayment, and tax benefits. In most cases, the funds are disbursed to the institution so that its utilization would be solely in paying tuition fees or incurring any other educational-related charges.
A personal loan, on the other hand, is an all-purpose loan that can be drawn for meeting education and other expenses, for which a personal loan does not pose a restriction, and the borrower himself receives it. This ensures direct disbursal of funds from it to facilitate extra expenditure for traveling, boarding, or other emergency personal purposes.
What Are the Major Differences Between Education Loan & Personal Loan?
An understanding of these differences between a student loan and a personal loan is very important before the right one is chosen. Here are some key differences:
- Coverage of Funds: Education loans, in general, provide cover for academic expenses, whereas personal loans permit unrestricted usage.
- Interest Rates: Education loans comparatively have a lower rate of interest than personal loans.
- Loan Tenure: Education loans sometimes have longer repayment tenures that suit students who need time to establish their careers before repayment.
- Tax Benefits: Education loans are eligible for tax benefits under Section 80E of the Income Tax Act, while personal loans are not.
- Collateral Requirement: Education loans are usually secured with collateral or a guarantor, while personal loans are typically unsecured.
- Moratorium Period: Education loans may have a moratorium period where the loan repayment starts after the end of the course, while personal loans are typically repaid immediately.
Which is the Better Option Between a Personal Loan and an Education Loan?
Personal vs. student loan- The choice between the education loan vs. personal loan depends on your financial requirements and preferences:
Opt for an Education Loan If:
- You require a loan purely for tuition fees and other academic expenses.
- You need the loan at a reduced interest rate with tax benefits.
- You require moratorium periods so that the loan becomes payable only after completing your study courses.
Opt for a Personal Loan When:
- You want to take a loan with flexible repayment, and your requirements also include expenses like travel and accommodation.
- You need speedy approval for the loan, with not much paperwork involved.
- You do not require pledging security or even guaranteeing another individual.
Eligibility Criteria for Education Loan vs. Personal Loan
Eligibility for Education Loan:
- Applicant must get admitted to any recognized institute
- Applicant should have a co-applicant who is either parent or guardian as a guarantor
- The applicant has to prove his academic performance and provide an admission letter.
Eligibility for Personal Loan:
- Applicants should have an employment source.
- ID proof, address proof, and income proof are required. But less documentation is needed.
- A good credit history boosts the chances of approval, but not in all cases.
How to Apply for an Education Loan vs. Personal Loan?
To apply for a personal loan, you need to know the process of each loan type to be eligible and to gather all the required documents. Here’s the step-by-step application guide for both:
Application for Education Loan
Begin by researching many education loan providers, which include banks and financial institutions. Compare their rates of interest, repayment periods, and other benefits such as interest subsidies.
Preparation of Necessary Documents
Gather all the necessary documents, which will include an admission letter from the educational institution, academic records, proof of identity and address, and information about a guarantor or co-signer if required. Some loans will also require collateral documents.
Submission of Application
Fill out the online application form at the lending institution branch by providing all the correct details about your course, spending, and repayment schedule. Submit all supporting documents with the form.
Verification and Approval Process
After making the application, your details will be validated by a lender who determines your chances of approval. This usually includes validation of the financial stability of your guarantor as well as that of the institution. Once submitted, your application gets processed, usually taking a day or two for any lender.
Research personal loans offered by banks, NBFCs, or digital lending platforms. Compare the interest rates, tenure of loans, and processing fees for the best possible deal.
Apply Online
Personal loans can be applied online for most of them, with very minimal documentation required. Just fill in the application form with all details regarding income, employment, and the amount of loan sought.
Submit Basic Documents
Upload or upload scanned copies of basic documents, such as proof of identity, address, and income. Most lenders do not require a lot of paperwork; therefore, the whole process is quicker and more convenient.
Loan Approval and Disbursal
After uploading your application, the lender will check on your creditworthiness and other criteria. Personal loans are usually approved in hours, and the amount gets credited to your account within 24-48 hours.
Understanding these processes will enable you to choose the type of loan and apply accordingly.
Bottom Line
Make a choice between education and personal loans. Compare your specific needs with an ability to repay along with your financial goals. For study purposes, education loans are more streamlined than personal loans.
It happens in life that a person needs funds as quickly and hassle-free as possible. And Stashfin would be the best partner who promises instant loans of up to ₹5 Lakhs for your entire application process with minimal documentation, competitive interest rates and provides financial support to meet expenses toward education, travel, or just any kind of personal expenditure to make you successfully complete the cherished dreams.
Frequently Asked Questions
Can I Use a Personal Loan for Education?
Yes, a personal loan can be used for educational purposes since these loans have no restrictions on usage. Thus, you can cover not only tuition fees but also travel, accommodation, books, and other such necessary expenses. Personal loans are particularly helpful to students who require more than just academic expenses for their funding.
Can I Get an Education Loan Without Interest?
No, education loans charge interest, though that varies from one lender to another, and that varies based on the credit score of the borrower. On the other hand, most government schemes offer subsidies or reductions in the effective rates of interest, especially for the economically weaker sections. This aids in the accessibility and affordability of higher education to students from such backgrounds.
Is taking an Education Loan Risky?
Taking an education loan is safe if you plan your finances and repayments wisely. However, failure to secure a job or generate sufficient income after completing your education can make repayment challenging. Defaulting on payments may result in a poor credit score and financial strain, so careful planning is essential.
Why is a personal loan better than an education loan?
A personal loan is much easier than an education loan. One can use the money for any purpose, such as tuition fees, living expenses, travel expenses, or even emergency needs since there is no constraint on usage. Besides, personal loans are processed fast and do not necessarily require collateral. It is a good loan for those who need funds quickly or have multiple purposes for which to use the money.
Refer:
https://www.herofincorp.com/blog/personal-loan-vs-education-loan