Education loan vs Personal loan: which is better?

Higher education has become more of a necessity than a choice in India nowadays. However, the costs of education are just skyrocketing day by day. A handful of people can afford it. But then there are banks and non-banking financial companies (NBFCs) who offer different financing options to ease the pressure of the aspirants as well as their parents. One is a personal loan and the other education loan.

What are personal loans?

They are unsecured loans that can be used for all purposes, such as a holiday, funding wedding, education, medical emergencies, home refurbishing, etc. They come with high-interest rate and should be repaid within 1-5 years. You can take a personal loan up to INR 20 lakh. It comes without the clutches of collateral. You repay the amount in equated monthly instalment (EMI) as soon as the lenders disburse the loan.

What are educational loans?

Also known as student loans, are used to fund the education of a student. These loans come with the competitive interest rate for a mandate of 15 years. You can take a loan amount up to INR 10 lakh for domestic studies and up to INR 20 lakh for studies abroad. The good part about student loan is that you can start repaying the loan after the completion of your course. However, if you take a loan amount above INR 4 lakh, be it for national or international studies, you have to provide security. Only certain banks in India have the no-collateral facility.

So, who will win the tussle between a personal loan and education loan?  We give you reasons as to which one can you opt for:

  1. Moratorium period: It is a period where the borrower does not have to repay the loan amount. It is also called the waiting period. This concept is generally applicable to education loans. The system was introduced in the education loan as students usually struggle to find a job soon after the completion of their course. Lenders offer concessional interest rate in the educational loan if the borrower pays off the interest during the moratorium period.


However, the repayment begins as soon as the lender approves of your loan in personal loans.


  1. Repayment: Student loan tenures range from 5 to 7 years, and sometimes it extends up to 15 years. It all depends on the loan amount. In case the student is unable to find a job after the completion of his/her course, he/she can ask for an extension of tenure from the lender. However, that could increase the rate of interest. On the other hand, personal loans are available for tenure up to 5 years.


  1. Tax benefits: When it comes to education loans, students stand a chance to gain tax deductions under section 80E of Income Tax Act. However, the deduction is limited to just the interest amount, and it is applicable once the repayment begins. Plus, it is available for 8 years. So, if your loan continues beyond this period, you cannot claim any tax benefit. Personal loans do not offer any tax benefits unless the credit is taken for home renovation. 


  1. Interest rates and additional charges: When you take up any loan, the interest rate plays a crucial role. Usually, an education loan charges a lower interest rate in comparison to a personal loan. Even the additional charges are lesser than personal loans.

These are some of the primary reasons. However, it is better to weigh the pros and cons as well as your suitability before opting for a personal or student loan.


education loan , student loan

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