Are you planning to study overseas and need a loan? Find out which one is better: An education loan or a personal loan.
In 2016, there was a study done by UNESCO Institute for Statistics, which stated that close to 2 lakh students are pursuing higher education in overseas countries, mostly in the UK, Australia, and the USA. Considering the wealth of benefits students get exposed to by studying abroad, this number is likely to grow in upcoming years.
However, let’s put it out there: studying overseas is expensive, and it could burn a hole, especially if your family is running on salary. Even if we keep the tuition fees aside, other expenses such as housing, food, semester-end fees, and personal expenses could run into several lakhs. Paying these expenses with just cumulative savings from your family members isn’t easy and won’t be possible for everyone.
And do you know universities in the US require the student to submit a financial certificate stating they have requisite funds to cover the cost of attendance for one academic year! Not submitting this certificate will lead your admission to be cancelled. Hence, to ensure your admission process goes smoothly, you need financial assistance, and several online loan apps are providing personal loans in the market. Here is a brief comparison between a personal loan and an education loan and how each of them has its own benefits, which a student has to weigh before choosing one.
No restriction on end usage
Before availing of an education loan, you need to submit financial documents given by the university, which states the cost of attendance for international students. Banks in such a scenario usually give out loan amounts stated in the university financial document. However, this isn’t the case with a personal loan. You can choose to spend a personal loan taken from the best loan apps or from a mpokket loan in India anywhere you want to. It could be travel tickets, lodging, etc.
Choose tenure as per your budget.
In a personal loan, the student gets an option to choose their repayment tenure according to their repayment capacity. If the course selected by the student has huge demand in the market, they can choose a shorter tenure as they will be done with their loan obligation quite early and vice versa. You can choose the best proposition using the several best loan apps available in India or via an EMI calculator to know the monthly obligation.
While availing of the education loan, the bank requires test scores, transcripts, an acceptance letter from the university, and sometimes other additional documents. However, this isn’t the case with a personal loan. If you have a good CIBIL score, there are higher chances of you getting a loan than the one with a low CIBIL score. If the student is working, then submit your last three months’ salary proof and bank statements.
Fast disbursal rate
One of the major advantages of availing of a personal loan is the fast disbursal rate it comes with. Usually, a personal loan is disbursed sometimes within 24 hours or in a week. Education loan is disbursed once the bank is done with reviewing the test scores, the credibility of the college the student is admitted into, and the demand of the course in the current market scenario.
Loan amount requirement
Before choosing between an education loan and a personal loan, one should note down how much they require to borrow to be able to study overseas. For example, mpokket loan issues a maximum loan amount of Rs 30,000. One can avail of an education loan up to 80 lakh to 2 crore, which is not the case with a personal loan where one could get a maximum of 40-50 lakh. Hence, tabulate the estimated expenses that will be incurred overseas and accordingly choose one.
Who is going to pay the loan: you or your family member?
One of the major factors that help you decide whether you should choose a personal loan or education is finding out who is going to fund EMIs. Personal loans do not offer any moratorium period; that is, repayment of EMI starts immediately after availing of the loan. Hence, if you are using your personal savings to cover EMI, then a personal loan is. However, if you need time to find a job or when you can reach that level where you have regular cash flow, then an education loan is. Education loan provides a minimum of 12 months of moratorium period from the date of completion of the course.
The amount of interest you pay on an education loan is comparatively less than a personal loan. To give you an estimate, you would end up paying somewhere between 7.95-15.2% p.a if you choose an education loan whereas, the interest rate of a personal loan you can find on Best Loan Apps is between 9.5% to 28%. A few lenders in India extend further 0.5% concession to girl students. One can choose any loan aggregate website or Best Loan Apps to compare different interest rates and choose the one provider out of many.
Education loan comes with Tax exemption, while a personal loan isn’t
Under section 80E, the borrower can enjoy tax benefits when they repay the interest until it is fully repaid or interest paid for a period of 8 consecutive years, whichever is earlier. One important point to note here is the principal component of the loan is not eligible for a tax deduction, and only the interest part is deducted from the taxable income. When you take a loan from a mpokket loan or other personal loan providers, one isn’t eligible to get tax benefits.
One might wonder isn’t better to fund your study abroad expenses via a traditional education loan instead of taking a personal loan from a mpokket loan or another loan provider. Well, the former one is better if you need funds just to cover the cost of attendance at the university. If you are visiting abroad and want to explore the city apart from pursuing the course, then a personal loan is a better option for those students.
Education loan has its own benefits; it prevents students from repaying the loan immediately, which isn’t the case with a mpokket loan or any other personal loan, comes with a low-interest rate, and if you are a girl student, you further get a concession.
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