Quick Guide: Taking a Personal Loan for Higher Education
Personal loan or education loan? What's going to be your ticket to higher education?
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The rising cost of education coupled with the increasing educational aspirations have led to big dependence on loans to finance higher studies of students. Most private graduation, post-graduation, specialized courses involve a high cost, and only a few can afford to bear these expenses from their pocket alone.
This cost goes up even higher when students move to another city or a country for their higher education, as other factors like accommodation, food, utilities etc. also need to be considered.
To help students and their parents, most banks offer education loan, so that lack of finances don’t become a hurdle. While students and their parents can also opt for a personal loan to bear the educational expenses, an education loan should be preferred because -
• Moratorium period: Unlike a personal loan where an individual has to start repaying the loan immediately, repayment of education loan begins only when a student secures a job. Further, a moratorium period is also offered in case of an education loan. A moratorium period varies from 6- 12 months and is referred to the time given to a student to find a job after completing his course in order to repay the loan. This way, you are able to concentrate on your studies and even start saving in the initial few months of your new job and not stress about repaying the loan immediately.
• Interest rates: When it comes to a personal loan, an interest rate is usually higher compared to education loan. Interest rates for personal loan begin from 10.99% while that of an education loan starts from 8.30%. Additionally, a concession of 0.5% on education loans may also be available for girl students. In case a student starts paying the loan amount during moratorium period, he might also get a concession of 1% on interest rate.
• Loan tenure: The tenure for a personal loan usually goes upto only 5 years and in case of an education loan, you can get a loan for 8-10 years, which also includes moratorium period. With a longer tenure, the EMIs get lower and convenient and it doesn’t stress your finances right at the onset of your professional life
• Tax benefits: While no tax benefits are offered when you opt for a personal loan, tax benefits under Section 80E on the interest paid on your education loan is provided when a student starts repaying the education loan. Also, there is no maximum limit on the deduction, which allows you to get full tax benefits on the interest paid on your education loan.
However, if due to certain reasons you are not eligible for an education loan, a personal loan can also be a good choice. Though the interest rate for a personal loan is higher as compared to an education loan but it comes with its own advantages.
Personal Loan Eligibility Criteria
Known to be a multi- purpose loan, a personal loan helps a student to deal with various expenses related to his education like rent, tuition fee, food, transportation, books, furniture, etc. unlike an education loan, which has restricted use.
If you are a student, with no income, you are unlikely to get a personal loan. You may have to ask your parents, sibling or guardian to avail it for you. If your parent/guardian meets the following eligibility criteria for personal loan, they are likely to be approved for a loan. The criteria is as follows:
• Your parent/guardian should be an Indian.
• The maximum age of your parent/guardian at the time of loan maturity should be 60 years.
• If a salaried professional, your parent/guardian should have atleast 2 years of experience with a minimum 1 year of experience in the current organisation.
• If self- employed, your parent/guardian should have the business running for minimum 2 years.
• Your parent/guardian should have a minimum monthly income of Rs. 25,000
• A strong credit score, preferably over 750
Note: The eligibility criteria, interest rates offered and other terms and conditions may vary from bank to bank
If you are someone who is a salaried professional or a self- employed individual but believes that it is never too late to pursue your higher education and wishes to opt for a distance course, a personal loan is the right choice because education loan is usually not offered for distance courses.
By availing a personal loan, you can fund your education without hampering your monthly budget.
Personal Loan for Higher Education- Documents Required
If your parent/guardian is availing a personal loan to fund your higher education, his documents will be required and if you are funding it on your own, your documents will be required to process the personal loan application. The documents are as follows.
• Proof of identity: Driving License, Voters ID, Passport, PAN Card, Aadhaar Card
• Proof of residence: Ration Card, Passport, Utility Bill (not more than 3 months old)
• Proof of income (for an employee): Latest 3 months salary slip, salary certificate and latest Form 16
• Proof of business (for self- employed): Bank Statements (latest 6 months bank statement/passbook)
Why Should You Avail a Personal Loan For Higher Education?
• Multipurpose loan: Unlike home loan or an education loan, a personal loan is a multipurpose loan and is not limited to any specific reason or situation. Let’s say, if you take a personal loan to fund your higher education, you can use it for other purposes apart from submitting the college fee. The loan can be used to deal with other expenses like food, transportation, tuition fee, rent, etc.
• Attractive interest rate: The interest rate offered on a personal loan by various banks and NBFCs is very attractive. Starting from 10.99%, the interest rate varies from bank to bank and ensures that your monthly EMIs are not too heavy to pay.
• Easy to avail: With digitalisation and advancement in technology, all the banks and NBFCs offer personal loan online on their app. Personal loan can be availed from the comfort of your home without any inconvenience just by filling a few basic details and submitting minimum documents.
• Flexible tenure: Ranging from a year to 5 years, the tenure for a personal loan is flexible and you get to choose the tenure as per your repayment ability.
• Instant disbursal: After the personal loan is approved, the amount gets disbursed to your account within a few hours or days.
Tips to Consider While Taking a Personal Loan for Higher Education
• Estimate the expenses: While you are calculating the expenses do not forget to consider tuition free, travel, food, books and rent. Once you are through with calculating and have an approximate amount in mind, you can figure out the amount of personal loan you need to avail.
• Know your credit score: One of the most important factors that influence your loan application is the credit score. A credit score of 750 or above can get you the desired loan amount if you meet the eligibility criteria while a credit score of below 750 may lead to the rejection of your application. Want to check your credit score for free? Click here.
• Check your eligibility: Before applying for the loan, check if you are eligibile for the personal loan amount you need on Paisabazaar.com
• Know the interest rate and other terms and conditions: You mush compare the interest rate of personal loans offered by various banks and then decide the best deal for you. Also, read all the terms and conditions and look for any hidden charges carefully before submitting your loan application. Also, consider other factors like pre-payment charges, processing fees etc.
• Decide tenure: The repayment amount completely depends on the tenure and almost all the banks offer flexible tenure to its customers. For a stress- free future and convenient EMIs, choose a perfect tenure as per your repayment capacity. Do note, that longer the loan tenure, the lower the EMI amount but higher the interest outgo on the loan.
• Apply online: These days all the banks allow you to submit your personal loan application online with minimum documentation. Fill in all the details, meet the eligibility criteria, submit documents and you are all ready to have funds in your account within a few days.
Education and personal loans are offered by most banks these days but you have to choose the right product and the right lender smartly. Also, do not borrow more than you can repay and make the EMIs on time to maintain your credit score. Do compare all choices available to you to make an informed decision.
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