What loan is better: Education or Personal?
Recent trends have shown that students nowadays are not only intelligent and skilled but also willing to step outside of their comfort zone when it comes to higher education and want to explore different possibilities. Nowadays, choosing to study at a foreign institute is a common practice and can easily cost a sizable amount of money. This is particularly true if lodging/accommodation costs, daily expenses, etc. are considered in addition to tuition rates. Getting a loan is the greatest approach to achieving this dream. What kind of loan should one take, then? The most frequent query is: Which loan should you choose between a personal loan and an education loan? You can learn more about them from the top overseas education consultant in Delhi, Visa Solutions 4U.
What is a Personal Loan?
A personal loan is not secured by any asset, unlike other loans. Since it is an unsecured loan and the borrower is not required to put up any security, such as gold or property, to obtain it, the lender is prohibited from selling any of your assets at auction in the event of a default. There are numerous uses for personal loans. It can be used to pay for housing, tuition, education, and many other things.
However, due to the higher potential risk when approving them, personal loans have higher interest rates than any other loans. You only need to submit a few documents when applying for a personal loan, and after it has been approved, the money is paid into your bank account. Banks, private online lenders, credit unions, and other financial institutions all offer personal loans.
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What is an Education Loan?
These days, tuition is more expensive, and not everyone is eligible for scholarships to cover college costs and obtain admission to reputable universities. In these circumstances, obtaining an education and a debt appears to be the only viable option. Students who need money to finish their studies might apply for an education loan.
Nearly all banks provide education loans to students looking to finance their postsecondary education. This education loan money is placed in the financial assistance office of your school or college. Banks, private online lenders, and the federal government all offer educational loans. The annual taxes can be used to offset the interest paid on student loans.
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Major aspects of differences in both loans
Advantages
The funds obtained from a personal loan can be used to pay for other expenses. This indicates that personal loans can be used without limitations. It can be used to pay for home improvements, travel, and medical costs. Since you don't need to provide proof of your education to qualify for a personal loan, the process is more simple and very minimal paperwork is needed. You may opt for a personal loan. You can simply obtain a loan with a maximum value of 25 lakhs and a repayment period of 12 to 60 months. Additionally, you can adjust your loan to your convenience.
In comparison to a personal loan, an education loan has a lower interest rate. Even lower interest rates are required if you are eligible for a government-sponsored loan. Repayment terms for student loans are often longer and might reach 20 years. Approximately six to twelve months after finishing your degree, you must pay. In this approach, your monthly EMIs are cheap and managing other expenses is simple.
Disadvantages
A school loan has a lower interest rate compared to a personal loan. You'll have to pay lesser interest rates if you're approved for a government-sponsored loan. Studies loans often have a lengthier repayment period of up to 20 years and are due roughly 6 to 12 months after you have finished your education. Your monthly EMI payments will be lower as a result, and you will find it easier to manage other expenses.
The money from the loan is directly paid to the financial assistance office of your college or university and cannot be used to pay for other expenditures. It may be challenging to pay back the loan balance if you are unable to secure employment after earning your degree or if your salary level is insufficient to cover the required monthly instalment. All of this can damage your credit history, and the stress of feeling like you can't keep up with your spending will keep you up at night. Therefore, before applying for an education loan, you should be completely aware of and knowledgeable about your existing circumstances.
Loan Terms
Personal loans and student loans have different terms for repayment. Banks give borrowers a maximum of 15 years to repay the loan amount plus interest. And after the course is finished and the suspension time has passed, the repayment will begin. Personal loans, on the other hand, have a maximum term of 5 years, and repayment begins the month after the loan is granted.
When compared to personal loans, education loans with a longer term will result in significantly lower EMI payments. The equation, however, can be completely reversed in terms of interest. It now depends on whether parents can obtain a personal loan sum sufficient for their children's education. What matters more is their ability to manage the relevant EMI. They shouldn't think twice about taking out a personal loan if they can do that without difficulty.
Tax Exemptions
Why not take advantage of tax benefits? Individual take-home pay is increased thanks to tax breaks. Which of the two loans, personal or student, offers tax advantages? These advantages, however, only apply to student loans, not personal loans. Yes, under Section 80E of the Income Tax Act, students are eligible for tax exemptions on the interest component for up to 8 years after the start of loan repayment.
Guarantee and security
Without any security, education loans up to INR 7.5 lakh can be authorised. Beyond that, collateral will be necessary, and in this case, the parents must be co-applicants. The guarantee can take the shape of a life insurance policy, house, or fixed deposit, among other things. In contrast, there is no demand for collateral for a personal loan. The loan can be approved if the parents have a strong credit history and the necessary income to pay the appropriate EMI. Therefore, it is obvious which option - personal loan vs college loan - offers the best flexibility and simplicity of acceptance.
Margins & Rate
This element must also be considered when comparing personal loans to student loans. When taking out an education loan that is greater than INR 4 lakh, the lender may add a margin to the borrowed amount. If you take a loan for pursuing higher education in India, the margin is 5%. The bank often adds a 15% margin on school loans for international study. Which margin is it? It is the component of your loan that the lender is not responsible for financing and that is solely the borrower's responsibility to manage.
Conclusion
One must have a good understanding of these two items after reading the comparison of personal loans and student loans up to this point. Unsecured loans for education are only given up to INR 7.5 lakh, but personal loans can be financed without collateral. Additionally, student debts over INR 4 lakh are not fully covered. Personal loans are often available for up to INR 15–25 lakh. A few lenders may extend loans up to INR 40 lakh. Personal loans are approved or denied based on credit history and parental income.
However, there isn't much of a difference in the interest rates between the two. Both parents and students are urged to utilise the EMI calculator for a more accurate cost estimate. This will clarify the costs associated with repaying one of these loans. Consider the tax advantages of student loans as well to see if the whole cost is lower than a personal loan.
How can VS4U help you?
A team of experts for study-abroad visas is available at Visa Solutions 4U. They can use their skills to assist you in maintaining and knowing about the cost of studying abroad. Our experts can guide you in fund accumulation as they are always in touch with many banks and financial aid institutes.
So why do you still have to wait? Contact us right away to schedule your profile evaluation meeting for an education abroad visa. Call +91-9551251295 right away, or send an email to enquiry@visasolutions4u.com.
