How are Personal Loans Different From Educational Loans?

As the competition is soaring the heights, opting for higher studies has become the necessity of Indian students rather than choice. This is done for the purpose of having a secured life ahead. However, funding educational expenses from personal capital is not possible for all because of the skyrocketing cost of higher education. And if someone prefers to study at a foreign university, the prices reach beyond capacity. To transform the dream into reality, the most common option among students seeking a loan is the educational loan and personal loan. Before selecting any particular loan, you should weigh both of them with patience, research and thought process. In this article, we will be discussing both types of loans and know which one is a more suitable alternative for a student.

How personal loan differ from educational loan

Loan amount: The loan amount can be taken after analyzing the financial needs and conditions. If anyone opts for an educational loan, the lending institutions will sanction the loan amount depending upon the fees and cost structure of the educational course. This amount generally ranges somewhere between INR 50,000- INR 1.5crore. Even one can apply this loan for short-term skilled oriented courses, and the loan amount can be as small as INR 5,000.

In comparison to this, a personal loan is subjected to the lender and credit history of the borrower. A personal loan is not restricted to educational cost, but it can also cover student lodging and flooding along with his family, relocating expenses, travel cost, etc. So if any student feels that they require extra funds to cover all other prices, then a personal loan is more propitious for them. One can also apply for a personal loan by Standard Chartered to finance their educational needs.

Moratorium period: This moratorium period becomes a decisive factor regarding the selection of loans by a student. It usually represents the time allotted to the students to find a steady job after the education is over to ensure smooth cash flow for loan repayment. This is absent in a personal loan where the repayment of the principal amount and EMI starts immediately after the first month. Whereas, the educational loan gives facility of moratorium period from 6-12 months after the completion of the course. This period can be further extended owing to any medical emergency and unemployment by the lender. Educational loan lessens the burden of loan by allowing a student and his family to repay the amount once he settles into a job before the EMI payment begins.

Interest rate: Again if a student draws a comparison between the interest rate in a personal loan and educational loan, the later is a more feasible option. A personal loan usually comes with an interest rate of 10.99% to 24%, while an educational loan comes with an interest rate of between 8.30% to 24%. A 0.5% concession is available for girls in an educational loan. Additionally, if a student starts repaying the loan amount within the moratorium period, then he will be granted a 1% concession on the loan amount. Hence, before making any decision, students must compare the interest rate offered on both types of loans.

Loan tenure: The EMI amount is directly impacted by the period for which the loan amount has been granted. In a personal loan, the tenure given is not more than 5 years with higher EMI payments due to high-interest rates. While in an educational loan the tenure varies between 7-15 years and the EMI payments are lesser due to low-interest rates.

Tax benefits: Under the section, 80E of Income Tax, a student who has opted for an educational loan is offered tax benefits. It starts from the day when a student repays the amount within a maximum time limit of 8 years. The benefits can be claimed after the repayment of the loan has started. Also, one must remember that benefits can be claimed if loans are repaid within 8 years, if it continues beyond that then no benefits will be provided. Unlike educational loans, there are no exemptions in a personal loan unless it has been directed towards home renovation. To claim benefits, one needs to submit bills as valid proofs.

Guarantor or collateral: Educational loan requires a co-applicant like parents or spouse. A third-party guarantor is needed when the loan amount exceeds INR 4lakhs, and additional collateral is required when the loan amount exceeds INR 7.5 lakhs. However, to avail a personal loan, there is no requirement of any guarantor and collateral as it is an unsecured loan.

Comparing both the loans, we understand that an educational loan has some benefits like the moratorium period, affordable interest rates, better tenure, and tax exemptions. A personal loan can be taken in the absence of any guarantor, co-applicant, and collateral and also if someone wants funds for additional expenses along with that of educational costs. The final call regarding procuring a loan for education totally depends upon the discretion of a student.

Asheer Raza
Asheer Raza
Asheer Raza is a blogger and web entrepreneur. He loves to write on Tech and Business related stuff.


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