Which is the preferable way of financing higher studies? Education Loan or Personal Loan

Cost of education is rising up tremendously and it is not going to decline anytime soon. So how do students fulfill their dream of pursuing higher education without disturbing their parent’s hard-earned savings?  An education loan can be the apt answer for this.

Students still hesitate before taking up any kind of loans but don’t panic in this article we talk about two financial options: education loans and personal loans, and how to pick one in order to get the best deal.

1) Understanding the basic difference

An education loan is only availed for education and its related expenses. The student here is the main borrower while it is backed by a guarantee of the parents or collateral in case of a huge loan amount. An education loan can be taken for pursuing all types of courses — graduation, post-graduation, diplomas, or vocational courses — whether in India or abroad.

A personal loan is a multipurpose loan that can be used for any kind of financial need. In the case of a personal loan, the amount, tenure and interest on the loan will be completely dependent on the applicant’s income and the past credit score. It is an unsecured loan for which you don’t have to vow collateral.

2) Moratorium Period

With education loan, a moratorium period applies which is usually the grace period that is given by financial institutions during which you are not required to repay the loan. The repayment process usually commences in 6 months after you complete the course. This period can also be further stretched in case of a medical emergency, unemployment etc.

Well it’s not the same in the case of a personal loan, you are not granted a moratorium period. The repayment procedure commences as soon as you avail the loan.

3) Interest Rates

On education loan the interest rates are lesser than those of personal loans; the interest rates may vary depending on the type of education loan. It also comes with lower processing fees as compared to personal loans.

A personal loan usually has higher interest rates as they are unsecured debts. They do not come with any kind of collaterals or asset submissions. The interest rate that the financial institution applies depends on several criteria’s, the more positive these factors are, the lower the interest rate will be.

4) Loan Tenure

The loan tenure for an education loan can extend up to 15 years, it is very crucial to keep in mind that the longer the tenure, the smaller the EMI would be. In an education loan, higher tenure period and lower interest makes the EMI’s lower.

Personal loan is usually available for up to 5 years while some financial institutions offer it for 6 to 7 years too. The EMI’s are usually higher as the interest rates on personal loans are generally higher. To conclude, an education loan seems like a better choice if you want funding for your studies. Compare lenders well and take the right decision.

All the best!