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Prashant A Bhonsle explains the differences between education loans and personal loans.
In today's world, pursuing higher education has become a priority for many students. However, the rising costs of education often pose a significant financial burden. To overcome this challenge, individuals often turn to loans to fund their educational pursuits.
Two common types of loans that people consider are education loans and personal loans. While both serve the purpose of providing financial assistance, they differ in several key aspects.
Let's explore the differences between education loans and personal loans to help you make informed decisions when considering your funding options.
1. Purpose
The primary difference between an education loan and a personal loan lies in their purpose. An education loan is specifically designed to cover educational expenses such as tuition fees, books, accommodation, and other related costs.
A personal loan is a multipurpose loan that can be used for any personal expense, including education.
Personal loans offer more flexibility in terms of usage, allowing borrowers to allocate funds as they deem necessary.
2. Eligibility Criteria
Education loans are typically offered by banks or financial institutions and have specific eligibility criteria. These criteria may include admission to a recognised educational institution, age limit, academic performance, and collateral requirements.
Personal loans have more general eligibility criteria that focus on factors such as income, credit history, and employment stability of the borrower which could be the parent in many cases.
Personal loans are not limited to education-related purposes.
3. Interest Rates
Interest rates play a very crucial role in determining the affordability of a loan. Education loans generally offer lower interest rates compared to personal loans. This is because education loans are considered as a social cause and the government keeps pushing banks to provide student loans with moderate interest rates.
This is done to make student loans more accessible to the larger market.
Personal loans offer higher interest rates as they involve greater risk for lenders.
4. Repayment Terms
Education loans often come with a grace period after the completion of the course, allowing student some time to find employment before beginning their loan repayment. To keep monthly payouts easy for the borrower, repayment tenure for education loans are generally longer.
Personal loans usually have shorter repayment terms, and the repayment process begins immediately after loan disbursement.
5. Tax Benefits
One significant advantage of education loans is the availability of tax benefits.
In India, borrowers can claim deductions for the entire interest paid on education loans, reducing their taxable income and leading to significant savings.
Personal loans, however, do not offer any such tax benefits.
6. Loan Amount
Education loans are typically structured to cover the entire cost of education, including tuition fees, accommodation, and other related expenses. The loan amount is often determined based on the course and the institution.
Loan amount for personal loans depends on the borrower's income, credit history, and other factors. The loan amount for personal loans may not always cover the entire cost of education.
In conclusion, education loans and personal loans have distinct differences that individuals should consider when choosing the most suitable option for financing their education.
Education loans provide specific funding for educational purposes with lower interest rates, longer repayment terms, and potential tax benefits.
Personal loans offer more flexibility in usage but may come with higher interest rates and shorter repayment terms. It is important for individuals to evaluate their needs, financial situation, and future goals before deciding between the two loan options.
Prashant A Bhonsle is the CEO & Founder, Kuhoo Technology