Higher education has become a necessity in today’s extremely competitive world. Attaining education from top-tier colleges across the world has since become the goal for almost every Indian student. But with the price of education at its ever-increasing peak, availing of external finance is the only way to make your way through college without depleting your savings.
Now, there are two financing options that can get you out of this bind. It’s student loan vs personal loan. Which one should you choose? Let’s explore.
1. Moratorium period
The moratorium period refers to the period where the borrower is temporarily exempt from repaying the loan. It essentially provides respite to college students, compensating for the time lag between completing their degree and finding a job. This period usually extends from the time of loan disbursement to around 6-12 months after completing the degree and is only offered to borrowers of education loans. During this period, lenders also calculate interest on a simple interest basis.
In the case of personal loans, however, monthly repayment starts immediately after loan disbursal. There is typically no period of respite, which can become a heavy burden to bear as a student.
Additional Read: Can You Take a Personal Loan and Education Loan Simultaneously?
2. Tax benefits
When it comes to education loans, you can claim tax deductions and recover the interest amount. According to section 80E of the Indian Tax Act (ITA), borrowers can file for tax deductions of the amount equal to the total interest payable. This is a luxury enjoyed only by education loan borrowers. In contrast, personal finance does not come with any such tax incentives.
3. Loan amount
When it comes to personal finance, you can obtain amounts ranging from Rs. 50,000 to Rs. 50,00,000, based on your credit score. On the other hand, you can obtain a loan amount ranging from Rs. 50,000 to Rs. 1.5 crore when it comes to education loans. This again can vary from lender to lender.
4. Interest rate
Interest rate is a key difference between personal loan and education loan. Generally, education loans usually have lower interest rates as compared to loans extended for personal use. Also, the processing fees applicable on education loans are comparatively less, depending on the lender.
5. Loan disbursal
Personal finance is credited directly to your account following the approval of your application. But in the case of education loans, the loan amount is directly credited to the account of the educational institution. Once the university collects the outstanding fee, you can claim the remaining amount, if any, to cover auxiliary expenses.
Additional Read: Education Loan from NBFCs: Pros and Cons
To sum up
When it comes to higher education funding, “education loan vs personal loan” is a question that comes up time and again. But with lower interest rates, moratorium periods, and numerous other advantages, education loans can be the right choice of financial assistance for your education.
We at Tata Capital offer interest rates as low as 10.99% at flexible tenures to help you pay for your tuition and other educational expenses. Use our personal loan EMI calculator to get started today!