By Ajay Sharma, Founder and President – Abhinav Immigration Services
Every year thousands of Indian students leave India to pursue their dream of studying abroad. They choose foreign universities for better employment opportunities and exposure to an international career. Many countries are known for specialised courses, such as fashion, business management, Information Technology, Hospitality Management, and more. However, most potential international students often find it challenging to finance their education abroad.
Student borrowers often rely on bank loans to pay for their education or meet the basic expenses of their education. However, finding the right source of funds can be tricky as students often get confused between an Education Loan and a Personal Loan as both have pros and cons. Applying for the right source of funds is imperative to efficiently manage your education-related expenses, such as accommodation, tuition fees, and other day-to-day expenses. It also gets you a lower interest rate and various other perks.
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Education Loan or Personal Loan – What’s the Difference?
A personal loan allows you to use the amount as per your wish. The borrowed fund can be used for various purposes, such as education, tuition fee, wedding, home renovation, vacations, etc. Banks, credit unions, or online lenders are the most common source of personal loans. The borrowed sum must be repaid within the given timeline with interest. A personal loan does not require collateral or security and can be provided quickly with minimal documents.
An education loan is a type of loan that students apply to pay for their education-related expenses. Many banks and NBFCs offer education loans at competitive rates to help aspiring students meet their dream of securing quality education in India or abroad. Since not every student gets a scholarship to cover their college fees, in that case an education loan is the best solution to finance your education.
There are two types of education loans
Domestic Education Loan: It is suitable for students pursuing higher education in India. The bank approves the loan only if the borrower enrolls in an Indian educational institution and meets other eligibility criteria.
Overseas Education Loan: It is suitable for students opting for a course or study program outside India. A student is eligible for this loan only if they secure a seat at a foreign college or university. The loan covers tuition fees, accommodation, airfare, etc.
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How can borrowers weigh what is the right option for them? Check out our analysis to know which one is a good bet for education abroad:
The coverage of your loan is a pivotal factor in choosing the right type of loan for your overseas education. Education loans are pretty good in this aspect, as one can get a loan quantum ranging from Rs 7.5 lakh to Rs 1.5 crore. On the contrary, the amount borrowed under a personal loan can be a maximum of Rs 25 lakh, which may be stretched to Rs 40 lakh in exceptional circumstances. If you are seriously considering overseas education, then an education loan is a better option.
Rate of interest
The interest rate on education loans ranges from 8.30 per cent (with collateral) to 10.5 per cent (without collateral). Whereas for personal, the range is between 10.99 per cent and 24 per cent. If you are a girl student, you can get a concession of 0.50 per cent on the education loan, which is not an option in personal loans.
A moratorium period in an education loan is when the borrower does not need to repay the loan. The repayment period starts right after the loan disbursement of a personal loan. But in an education loan, a student can repay once they complete their studies and start earning. The moratorium period covers the entire course duration plus six months or 12 months where the lender has sufficient time to manage funds for repayment of their loan.
Who doesn’t like availing tax benefits? Tax concessions are the best way to increase your in-hand income. So, which of the two has it? Personal loan or education loan? Let’s find out. Well, most of these perks can be availed under education loans. Feeling surprised? Under 80E Section of the Income Tax Act, students can get tax exemptions for up to 8 years from the moment their loan repayment period starts.
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Another significant benefit of an education loan lies in its tenure of 10 years, compared to 5 years in a personal loan. Longer loan tenure is beneficial for students when it comes to managing installments at the time of loan repayment.
Personal Loan vs Education Loan – what to choose?
In comparing personal loans vs education loans, you must have a basic idea of what to choose to fulfill your foreign education needs. In contrast, personal loans can be used for several purposes and can be offered up to Rs 15-25 lakh. Only a few lenders can give you a personal loan of up to Rs 40 lakh. In comparison, an education loan can be approved for up to Rs 1.5 crore. There are also benefits of tax exemptions and extended loan tenure. So, in the case of education abroad, an education loan is surely a winner. Rest it all depends on your needs and preferences.