Loans are a go-to solution when addressing major financing expenses. If you're considering loans for education or maybe for personal expenses, understanding the difference between personal loan and education loan is crucial. Both offer financial assistance but differ in terms of purpose, interest rates, repayment structure, and eligibility.
Understanding the difference is inevitable since a loan rejection can also impact your credit score. And that is why with this knowledge save yourself from a wrong loan application!
Read this blog as it doubles down on the concepts of personal loan vs education loan, helping you decide which fits your needs best.
Table of Contents
What is a Personal Loan?
A personal loan is an unsecured loan that banks and financial institutions offer based on your income, credit score, employment history, and repayment capacity. Unlike other loans designed for a specific purpose (like a home or car loan), quick loans are multi-purpose and can be used at the borrower's discretion.
Common Uses of Personal Loans
People take personal loans for various reasons, driven by their financial needs and goals. Some common scenarios include:
- Funding a wedding or vacation
- Managing medical emergencies
- Home renovations or repairs
- Debt consolidation
- Purchasing high-value electronics or gadgets
Benefits of Personal Loans
- Quick Access to Funds – Personal loans are processed faster compared to education loans. If you meet the eligibility criteria, funds can be disbursed within 24-48 hours.
- No Restrictions on Usage – Unlike education loans that can only be used for academic expenses, personal loans provide complete flexibility in spending.
- Minimal Documentation – With digitized loan applications, getting a personal loan requires fewer documents and is hassle-free.
- Shorter Repayment Tenure – Personal loans usually have a repayment period of a month to 5 years, making them a quicker financial solution.
- No Collateral Required – Since personal loans are unsecured, borrowers don’t need to pledge any assets.
- Potential Tax Benefits – In some cases, instant personal loans used for business or home renovations may be eligible offer tax deductions under the Income Tax Act.
Drawbacks of Personal Loans
- Higher Interest Rates – Interest rates for personal loans are typically higher than education loans, ranging from 8-24% basis the loan tenure.
- Strict Repayment Terms – Unlike education loans, personal loan EMIs start immediately, adding to financial pressure.
- Credit Score Dependency – A low credit score (below 700) can lead to higher interest rates or loan rejection.
- Shorter Loan Tenure – While the shorter tenure is beneficial for quick repayment, it also means higher EMIs, making it difficult for some borrowers.
What is an Education Loan?
An education loan is a specialized loan designed to fund academic expenses for students. It covers tuition fees, accommodation, study materials, laptops, and sometimes even travel expenses, depending on the lender's terms.
Types of Education Loans
- Federal (Government-backed) Loans – These loans often come with low interest rates and borrower-friendly terms.
- Private Loans – Offered by banks and NBFCs, private education loans have higher interest rates but offer more flexibility.
How Does an Education Loan Work?
- Borrowers get a moratorium period covering the course duration plus 12 months post-graduation, during which no EMIs are required.
- Interest may be subsidized by the government for specific categories.
- Lenders assess academic records and future earning potential before approving the loan.
Education Loan Rejection Criteria
- Low Credit Score (below 700)
- Applying for courses with low employability
- Choosing a non-recognized institution
- Lack of co-applicant or guarantor
Benefits of Education Loans
- Deferred Repayment – Students don’t have to start paying EMIs immediately, easing financial burdens during their studies.
- Lower Interest Rates – Generally lower than personal loans, making repayment more manageable.
- Eliminates Financial Barriers – Enables students to pursue education without compromising on their preferred institution.
- Tax Benefits – Under Section 80E of the Income Tax Act, interest paid on education loans is eligible for tax deductions.
Drawbacks of Education Loans
- Repayment Burden – If you fail to secure a job post-graduation, repaying the loan can become stressful.
- Negative Impact on Credit Score – Defaulting on education loan EMIs can significantly damage your credit score.
- Always Overdue Risk – Missing even a single EMI can lead to financial pressure for subsequent payments.
- Limited Course Selection – Loans are mainly approved for courses with high employability rates.
- Restrictions on Course Switching – If you decide to change institutions or drop out, lenders may impose penalties or additional service fees.
Which is Better Personal loan or Education loan: Comparing Both Options
Conclusion
The difference between personal loan vs education loan boils down to purpose, repayment terms, and interest rates.
If you need funds for education, an education loan is the better choice due to lower interest rates and deferred repayment.
However, if you require quick, flexible funding, a personal loan might be more suitable. So if we are to conclude the question- Which is better, personal loan or education loan? The answer entirely depends on your financial goals, purpose, and repayment capacity.
Contact Creditt+ for the best loan options available for salaried individuals, with policies in consideration of their current repayment capabilities. Contact us today and we will do the needful to help with your financial needs.
