Personal loan vs education loan: Want to fund your studies? This can be a better option
You can opt for both personal loans and education loans to fund your studies. But, compared to personal loans, education loans offer more benefits like lower interest rates and tax benefits, among others.
Whether you want to go abroad for higher studies or take up a professional course in India, dealing with the hefty fees can be challenging at times. This is the reason that many students take loans to fund their education with the plan to repay it once they bag a good job. Now, both education and personal loans can provide you with the funds you require for your education. But, do you know which one is a better choice?
To choose the suitable loan for your studies, it is important to take into consideration several factors. The points below will help you decide if you should opt for a personal loan or education loan to cover your education cost.
The interest rate on personal loans is on the higher side as compared to education loans and ranges between 10 per cent and 24 per cent per annum. Education loans, on the othernad, come with a lower interest rate of 7.15 per cent to 15.20 per cent annually. In addition, some banks also offer interest concessions to girl students.
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Education loans have longer repayment tenure, which gives students more time to plan their finances. The repayment tenure for education loans can go up to 15 years while for personal loans the tenure is shorter at around five years.
Personal loans offer no tax benefits to the borrower and with the high interest rate it could be a bad choice for the student. On the other hand, education loans can help save income tax. Borrowers can claim a deduction of interest paid on the loan under Section 80E of the Income Tax Act, 1961.
The maximum amount you can borrow to study abroad or in India can vary from lender to lender in case of an education loan. However, the loan amount limit in personal loan depends on factors such as your monthly income and credit score, among others.
Usage of funds
When you avail an education loan, the funds are directly transferred to your school, college or educational institution. This means that you cannot use the loan amount to meet other expenses such as food, travel or accommodation. A personal loan, however, has no such restrictions. The funds you borrow through a personal loan can be spent on anything you want.
In the end, choosing an education loan or a personal loan depends solely on the needs of the borrower and you should choose the right option taking all relevant factors into consideration.