7 Reasons Why a Personal Loan for Education is Recommended
Whether you happen to be a college student aiming for higher studies, or a parent with an ambitious child, we are sure, the thought of procuring a loan to fund the education may have crossed your mind multiple times. While you may only be thinking along the lines of getting an education loan, the fact of the matter is that you can meet similar goals with a Personal Loan as well.
Here, we have discussed various nuances pertaining to these loans, so that you can carefully analyse the benefits and limitations of each of them, and make a final call based on the same.
1. Credit Score
When it comes to the credit rating, it is imperative for the borrower to enjoy a good score, preferably 750 or above to get quick approval on the loan application for both – Personal Loans as well as education loans.
2. Eligibility Criteria
To Get a Personal Loan, the borrower must be a salaried individual, a business owner, or a self-employed professional, with a minimum experience of 2 years in work/business/profession, and a minimum annual income of Rs. 3Lakhs. The borrower’s age must ideally be between 21 and 65 years.
In case of an education loan, it is essential for the borrower to be a resident of India, with a certain admission in one of the colleges/institutes recognised by the UGC or AICTE. The candidate’s age must be between 18 and 35 years. In case the candidate is pursuing a full-time course, it becomes mandatory to have a co-applicant such as a parent, guardian, spouse or parent-in-law for procuring the loan. An education loan can only be obtained for a graduate or post-graduate degree or a post-graduate diploma.
When a borrower procures an education loan, the disbursed amount can only be used to meet the expenses directly related to the course, such as tuition fee, laptop, and living expenses amongst others. On the other hand, the amount disbursed for a Personal Loan can be conveniently used for fulfilling a wide range of financial obligations – right from sponsoring the child’s education, to home renovation, from medical expenses to important life events such as weddings. This can prove to be for the benefit of those borrowers who wish to meet multiple expenses of varied nature.
4. Interest Rates
More often than not, education loans are available at interest rates ranging from 10.25% to 17.95%, while Personal Loans are usually offered at comparatively higher prices, ranging from 10.99% to 22%. Hence, the overall cost of a student loan will be relatively less, making it a better choice for the borrowers who wish to take the credit strictly to fund education.
5. Loan Disbursal
In case of a Personal Loan, the loan amount is disbursed to the borrower’s account within a few days of the approval of the application. The amount can then be used towards any purpose, as per the borrower’s discretion.
The process of disbursal is, however, different for education loan, wherein, the loan amount is credited in the account of the educational institution. Once the amount is credit, the office uses the money to cover the outstanding tuition fee as well as other fees related to the course. That being done, the borrower can them claim the remaining funds, and use them for auxiliary expenses such as rent, phone bills, and so on.
Both, education loans, as well as Personal Loans, will need you to repay the loan amount in the form of equated monthly instalments (EMIs). However, in case of Personal Loans, the repayment will start immediately after the disbursal of the loan amount, while in case of educational investment, the repayment will usually begin within 6-12 months of the completion of the degree for the course for which the loan was procured. This period is known as the moratorium period. If borrowers wish, they can opt to pay the interest towards the loan during this period, to enjoy a reduced financial obligation during the tenure of the loan.
7. Tax Benefits
When students avail education loan, they stand a chance to enjoy tax benefits under Section 80 E. These benefits are only applicable on the interest outgo of the credit, and not on the principal. Unfortunately, borrowers who opt for Personal Loans are not entitled to any tax benefits.
We hope that you are now well aware of the similarities as well as the differences between Personal Loans as well as education loans in India. If you are looking for more flexibility with respect to the use of the loan amount, and don’t want to worry about the course being approved by UGC/AICTE, then you should opt for a Personal Loan. On the other hand, if you are someone who wants to enjoy a cheaper credit, with additional tax benefits, you should stick to the conventional education loans.
Regardless of the type of loan that you chose, you must look out for at least a few offers from different banks, and carefully analyse the terms of the loan offered by each bank. Needless to say, you must move forward with the lender that gives you the best deal.
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