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Tata Capital > Blog > Personal Use Loan > Personal Loan Vs Education Loan: Which Is Better For Funding Education Cost?

Personal Use Loan

Personal Loan Vs Education Loan: Which Is Better For Funding Education Cost?

Personal Loan Vs Education Loan: Which Is Better For Funding Education Cost?


Every year, millions of students apply for higher studies. They not only have to get better grades but also need a lot of money. During such instances, they decide to opt for a loan. But getting the loan isn't as easy as it seems.

Students need to pay extra attention to what loan they are getting, the rate of interest, the tenure of the loan and when they must pay back the loan. One must ascertain their eligibility for the loan after considering those factors. 

Some loans need collateral, while some loans are collateral-free. To help you understand more, let's check the types of loans and everything about them.

For education purposes, one can take two types of loans:

  • Education loan
  • Personal loan

What is an education loan?

An education loan is a type of loan specially designed for education, where one cannot take this loan for any other purpose except education. These loans are extremely popular among students and working professionals as these loans are provided by government schemes, banks, and even private lenders.

Education loans are mostly collateral-based loans, but the interest rate ranges on the lower side. If one doesn't have any collateral, then they can also take a loan based on the third-party guarantee, which means if in future one is unable to pay the loan, the third party guarantees to pay the same on behalf of them and thus, they have sanctioned the loan based on the same.

There are mostly two types of education loans available for higher education.

  • The domestic education loans
  • The abroad studies education loan

There are multiple benefits and cons of getting an education loan, such as -

  • Lower rate of interest: Due to the guarantee of collateral or the third party, the interest rate in the education loan is quite low and affordable. Also, this rate of interest amount can be claimed as a refund when filing your income tax returns as it is treated as an exemption in return.
  • Moratorium period: The moratorium period is a period available only in education loans where the repayment is kept on hold during the duration of the education; even after the course completion, students are provided 6-12 months to find a job to start repayment. The interest is calculated on a simple interest basis. These are a relief to students as they find it self-sufficient and a lesser burden to parents.
  • Eligibility: With multiple benefits of the education loan, there are also certain exceptions, such as the main problem, which is loan eligibility. Not everyone is eligible for an education loan; thus, they are denied the chance to avail themselves of the same. If the person doesn't have any collateral or third-party guarantee, then the person is not allowed to avail of the education loan. In such a scenario, they avail of other forms of loan, such as a personal loan.

What is a personal loan?

A personal loan is a form for any purpose known to the borrower with flexible interest rates and is collateral-free. It is also mostly available as a substitute for an education loan as it is comparatively easy to avail, and there are no restrictions or eligibility criteria for the same except the credit score.

But to understand in gist the benefits and cons of a personal loan:

  • Personal loan has a higher rate of interest than education loan, where education loan ranges from 6.75% - 12.19%, personal loans can go up to 10.5% - 21% comparatively, and thus it is expensive as compared to education loan.
  • There is no restriction on what the borrower does with the funds availed via a loan, which is not the case with an education loan.
  • Unlike education loans, there is no moratorium period in the case of a personal loan, and the person must pay the loan within a year.
  • A personal loan is more beneficial if one works professionally than a student who must work but also aims for their higher education.


Thus, if one is eligible for an education loan, then for higher education, one should opt for an education loan. At the same time, if one is a working professional or, in any case, doesn't fit the eligibility criteria, then one should opt for a personal loan. It is more beneficial for the working professional as they can easily pay the interest and the EMI's, while for the students having a moratorium period is essential, as it makes it easier for them to focus on their studies and pay the loan on their own.

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