Education Loan vs Personal Loan
Decision Making
When planning to pay for higher education, it might be difficult while deciding between an education loan and a personal loan. Both loans can help to cover study costs but they have different conditions, advantages and disadvantages.
Let’s explore the main differences between these two types of loans focusing on the Indian market in making a well informed decision.
What is an Education Loan?
An education loan is designed to assist students in paying for their higher studies. It is available to those who wish to study either in India or in other countries. These loans can help cover various costs including tuition fees, living expenses, the cost of books and other necessary expenses related to education.
Education Loan vs Personal Loan | Key Features of Education Loans
(i). Tax Benefits
Under Section 80E of the Income Tax Act there is an option available to claim for a tax deduction on the interest paid on education loans.
(ii). Flexible Repayment
The repayment period for education loans is basically longer than the personal loans (typically it varies between 5-15 years). There is also a moratorium period where they don’t have to pay the loan immediately once it is approved until they complete their studies and start working.
(iii). Collateral-Free Option
There is no collateral is required For loans up to 7.5 lakh. However, For loans above this amount banks may ask for collateral like property or fixed deposits.
(iv). Lower Interest Rates
Education loans generally offer better interest rates than personal loans. These rates usually fall between 8% and 15%, which can be varied based on the bank and or credit rating. A good credit score might help to get the lowest rates and saving money in the long run.
What is a Personal Loan?
A personal loan is an unsecured loan can be used for any purpose including education. Unlike education loans personal loans are not specifically meant for educational purposes only and can be used for a variety of expenses.
Education Loan vs Personal Loan | Key Features of Personal Loans
(i). Quick Processing
Personal loans are often processed faster than education loans and the disbursal can be completed in a few days.
(ii). Higher Interest Rates
Personal loans generally come with higher interest rates as compared to education loans (ranging from 10% to 20%). This is because they are unsecured and the lender bears a higher risk.
(iii). Shorter Repayment Terms
Personal loans typically have shorter repayment periods ranging from 1 to 5 years due to higher risk associated.
(iv). Flexible Use of Funds
As said personal loan can be used for any purpose like education, personal needs, home renovation, medical expenses, marriage, traveling etc.
Education Loan vs Personal Loan: Key Differences
(i). Purpose
Education Loan: Specifically meant for education-related expenses like tuition fees, accommodation and other academic expenditures.
Personal Loan: Can be used for any purpose including education.
(ii). Repayment Period
Education Loan: Offers a longer repayment period of 5-15 years with a moratorium period during the course duration.
Personal Loan: Typically has a shorter repayment period of 1-5 years.
(iii). Interest Rates
Education Loan: Education loans usually come with lower interest rates ranging from 8% to 15%.
Personal Loan: Personal loans have higher interest rates usually between 10% and 20%.
(iv). Loan Disbursal Time
Education Loan: Processing might take more time due to the need for document verification and approval of course details.
Personal Loan: Generally quicker disbursal within a few days.
(v). Tax Benefits
Education Loan: It can be claimed a tax deduction on the interest paid under Section 80E of the Income Tax Act.
Personal Loan: No tax benefits are available for personal loans.
(vi). Collateral Requirements
Education Loan: No collateral is needed for loans up to 7.5 lakh. However, For larger amounts collateral may be required.
Personal Loan: No collateral is required as it is an unsecured loan.
Education Loan vs Personal Loan | Which Loan Should You Choose?
The choice between an education loan and a personal loan depends on the specific needs, financial situation and requirement.
Education Loan vs Personal Loan | Here are some factors to consider
(i). Need Financial Aid for Education
An education loan is the better option as It offers lower interest rates, longer repayment periods with tax benefits which makes it more affordable for students.
(ii). Personal Expenses or Immediate Needs
For personal monetary requirements, other expenses or needs beyond tuition, For faster disbursal or approval a personal loan may be a good option. However, It should be kept in mind to pay higher interest rates and shorter repayment terms while opting personal loan.
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