Fund higher Studies: Personal Loan vs. Education Loan
Education is one of the essential requirements for the development of an individual. It is the foundation on which your entire career is built upon. It not only imparts the necessary skills required to succeed in the real world but also plays a pivotal role in the all-round development. Paying for higher education is thus an investment rather than an expense for students and their parents.
When it comes to education, you want nothing but the best. Whether you apply with the leading institutions in India or abroad, it is a universal fact that the cost of higher education is rising with each passing year.
Sometimes, your savings might not be enough to cover the total expenses involved. Money should never come in the way of your dreams and aspirations. This is why lenders offer the option to apply for a bank loan to fund education costs.
There are two distinct options available to you, i.e., Education Loan and a Personal Loan. Both have their pros and cons, and therefore, you must decide after careful deliberation only.
Education Loan is a peculiar loan that is offered by select financial institutions in India to students seeking admission in reputed institutes for higher education. The money offered as an Education Loan can be used only towards the payment of fees and other expenses related to education.
Education Loans are available for studying in India as well as overseas. To apply for an Education Loan, a co-applicant is required, i.e., parent or spouse. In case the loan amount applied for is substantial, then the lender can ask for collateral as well. Education Loans come with a Moratorium Period, and the repayment commences after the student has completed the course.
Personal Loans are unsecured loans that are offered for any financial requirement. As the usage of Personal Loan is not restricted, the amount can be used to fund costs involved with higher education. Personal Loans are unsecured, and there is no need to search for a guarantor or collateral. The repayment of a Personal Loan has to be done in EMIs as per the loan schedule. A Personal Loan can be used to pay for traveling expenses, relocation costs, wedding or other associated expenses with higher education. The repayment tenor for Personal Loans can extend up to five years.
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Personal Loan vs. Education Loan
The same lender can offer you both the products, for instance, Axis bank offers you education loan as well as Axis Personal Loan. However, it is possible to get confused regarding the suitability of either of these loans for financing the expenses related to higher education.
Here is a comparative analysis to help you make a decision:
The amount available as an education loan is based on your financial condition and the fees specified by the university/ institution. If the lender is satisfied with your credit profile, you can avail amounts of up to Rs. 1.5 crore as education loan. While in case of a Personal Loan, the amount available is linked to your credit profile only.
Rate of interest applicable on an Education Loan is generally lower than a personal loan. The interest rate for Education Loan starts from 8.30% with a concession of 0.5% for female applicants. Moreover, you can avail a concession of 1% on the interest rate if you serve the interest during the mortarium period. Personal Loan Interest Rates start from 10.50% can go as high as 24%. There are no concessions available against a Personal Loan.
In order to reduce the burden of the EMI on the student and family, financial institutions offer a Mortarium Period on the repayment of Education Loan. This period can vary between 6 months to 12 months and can be further extended by the lender. Repayment will start after completion of the mortarium period or after the student gets a job, whichever is earlier. In case of Personal Loan, repayments must start immediately as per the loan agreement. There is no provision for a Mortarium Period on Personal Loans.
Education Loans come with an extended repayment tenor of up to 15 years. This reduces the amount you have to pay as EMI, making it easier on your pocket. In case of Personal Loans, the maximum repayment tenor available is 60 months. As a result, the amount to be paid as an EMI is generally higher.
Education Loans can be used only to pay the fees and other related expenses to the university or institute. While the use of a Personal Loan is entirely at your discretion, so you can use the amount to pay the fees, books, travel expenses, besides buying new stuff or more.
There are no benefits available against a Personal Loan used for repayment of education-related expenses. While when you avail an Education Loan, you are eligible for tax benefits under Sec 80E of the Income Tax Act 1961. The benefits accrue from the time you start repaying the loans and are available for up to a period of eight years.
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In order to avail a Personal Loan, you need not offer collateral or a guarantor as it is an unsecured loan. Though, to avail an Education Loan, you need a co-applicant in the form of spouse or parents. If the amount exceeds Rs. 7.5 Lakhs, additional collateral may be required by the lender.
With the various benefits on offer, an Education Loan is certainly a better option as compared to a Personal Loan when it comes to covering the expenses involved with higher education. Though, you may Apply for a Personal Loan if the amount available as Education Loan is inadequate or you need more money for ancillary expenses.
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