Can you use personal loans for higher education? Here’s what you need to know

Funding higher education is one of the significant challenges for most students in India. Apart from good grades, it is equally important to have enough finances to fund your education. Most parents spend all their savings to fulfil their child’s dream. However, sometimes, the savings are not enough to cover education costs. The current financial landscape offers many ways to fund education; one such tool is a personal loan.

What is a personal loan?

A personal loan is an unsecured form of loan that provides a sum of money at interest, which has to be paid in monthly installments. This loan can be used for multiple purposes.

Can personal loans be used for higher education?

A personal loan can be used for multiple purposes; therefore, it can be used to fund higher education. This loan can cover the costs of education, such as tuition fees, accommodation costs, books, and other miscellaneous expenses. Compared to an education loan specifically designed to fund studies, a personal loan offers flexibility. An education loan may have restrictions on the use of funds; a personal loan can be used in accordance with your requirements.

Advantages of using personal loans for higher education

1. Usage: A personal loan can be used to cover various expenses. There is no restriction on the type of expense that is covered under a personal loan. Therefore, it can be used to cover education-related costs.
2. Faster approval: The process to apply for a personal loan is easy and quick. Therefore, it is convenient for students who are in urgent need of funds.

3. No security required: Unlike other loans, a personal loan does not require collateral as a security against the loan. This is beneficial for those who do not have any assets to use as collateral.

4. Repayment terms: Personal loans have fixed repayment terms making it easier for borrowers to plan their future budget easily.

5. No margin money required: A personal loan does not require margin money, which is an amount that is a down payment on the total loan. Some education loans may require margin money. However, this may vary from bank to bank.

Disadvantages of a personal loan

1. Interest rates: Compared to other types of loans, especially an education loan, a personal loan may have a higher interest rate, which increases the total loan repayment amount.
2. Repayment time: Unlike an education loan, a personal loan has a shorter repayment period. This may mean that the EMI will be higher each month, making it difficult for students to manage their expenses.
3. Eligibility concerns: Some lenders have very strict eligibility criteria to grant a loan. Lenders may also set an income limit as an eligibility criterion. This might make it difficult for students to get a loan as they do not have a constant income source.

In conclusion, before opting for a personal loan to fund your higher education, explore all the financial tools available, such as scholarships, grants, and student loans. Such tools may offer more favourable terms and conditions compared to a personal loan. If you plan to opt for a personal loan to fund your education, consider factors such as interest rates, repayment terms, and potential impact on your credit score.

(Note: Raising a loan comes with its own risks. So, due caution is advised)