According to a number of surveys, school students use bank loans to pay for their education. To obtain reduced interest rates, generous conditions, and other advantages, finding the correct source of education funding is essential. When choosing how to pay for college, borrowers frequently have to decide between personal loans and education loans.
Differences between personal loans and education loan
We provide you with point-by-point analysis to assist borrowers in weighing their alternatives in light of their requirements and selecting the loan type that will better facilitate them to pursue their academic goals.
Coverage of costs – The cost coverage of an education loan in India is one of its main advantages. Borrowers may send the sender and the recipient in relatively large quantities from 7.5 lakhs to 1.5 crore Indian rupees. In contrast, personal loans have a maximum loan limit of INR 25 lakhs, which may be increased to INR 40 lakhs in extraordinary circumstances. If borrowing the money is designed to fund an academic exposure, an education loan would be more beneficial.
The interest rate
For loans with collateral, the interest rate on an education loan starts at 8.45%; for loans without collateral, it is 10.5%. Unsecured student loans could have higher interest rates up to 14%. A personal loan’s interest rate, however, might be anywhere between 10.5% and 24%. Furthermore, a 0.5% additional APR reduction for female borrowers is provided on school loans but not on personal loans.
Personal loans do not offer any tax advantages. However, taking out a loan to pay for your education can help you save on taxes. Under section 80E of the Income Tax Act of 1961, borrowers may deduct interest paid on loans taken for higher education. Furthermore, under the Liberalized Remittance Scheme (LRS), if the money is sent through an education loan, the Tax Collected at Source (TCS) on sums over INR 7 lakhs is merely 0.5%. The TCS is 5% for money sent through any other source.
Government interest subsidy services
In addition to the aforementioned tax advantages for student loans, a number of interest subsidy programmes assist borrowers in decreasing their monthly interest costs. A few of the few plans that borrowers or students can take advantage of in the beginning of their education loan are the Central Sector Interest Subsidy Scheme. Only school loans are available for these schemes; personal loans are not.
The moratorium period is the time frame during which the borrower is exempt from making loan payments. The standard moratorium duration for student loans is a course period plus 12 months. In contrast, there is no moratorium period for personal loans, and the EMI begins immediately upon loan issuance.
Penalty for early payback
Paying off debt early can help you save on interest costs. When a student loan is paid, the lender does not charge a penalty. Prepayment penalties for personal loans, however, can be as much as 2.5% plus GST. The actual penalty fee is dependent on the lender and the loan amount.
Loan tenure is another advantage of an education loan over a personal loan, which has a shorter loan length of only five years. Students benefit from longer loan terms since the EMI becomes more manageable.
When ought one to choose a personal loan?
When a borrower needs lesser amounts of money for a shorter period of time, personal loans are the best option. A personal loan application is simple, quick, and requires few papers. The main criterion used to determine loan eligibility is credit score. A borrower could be pre-qualified for a personal loan depending on their credit score.
While there are several options available to borrowers, education loans are by far the most effective way to pay for higher education, whether it be in India or abroad. When borrowers need a quick finance solution for immediate spending, personal loans are more suited.