These days’ students are not only bright and gifted; they also want to push themselves outside of their comfort zones when it comes to higher education and explore different possibilities.
This can be seen in recent developments. Students often want to study abroad at a foreign institute, but doing so can be pretty expensive. In particular, this is true if we factor in the cost of living and tuition, and other fees.
Taking out a loan is the most effective method of realizing this goal. When this happens, the question of what kind of loan to take up becomes relevant.
A prevalent concern is: between an education loan and a personal loan, which should you take out? Both have advantages and disadvantages that are unique to them. Let’s take a closer look at what they’re trying to say.
Using student loans as a benchmark to compare to personal loans
There are some significant similarities between a private student loan and a personal loan:
Online loan providers like SoFi, traditional banks like Citizens Bank or credit unions provide personal loans and student loans backed by private lenders instead of the government.
Private student and personal loans usually involve a credit check as part of the loan application and approval procedure—good credit and borrowing requirements. Unlike private student loans, federal student loans do not have the minimum credit score or income criteria.
Unsecured debt includes things like credit card debt and private student loans. As a result, any money borrowed through one of these products has no security.
With both forms of loans, money is funded upfront in a lump sum and repaid over a specified time with monthly payments referred to as installments.
What you can do with the loan The most significant difference is what you can do with the loan.
You may utilize a personal loan to pay for nearly anything these days. In contrast to a mortgage, vehicle loan, or even a school loan, the terms of the loan are not linked to its intended use” (though some lenders might have a few restrictions about their use).
So personal loans have become a common financing choice for a wide range of expenditures. This includes anything from unanticipated expenses like car repairs to life events like a wedding and moving.
It’s important to note that students who take out private student loans can only spend college expenses like tuition. Student loans can also be used to pay for childcare for dependents, a new laptop for academics, or even your rent or phone bill if you need the money.
What your options are for interest rates
The interest rates on private student loans are typically substantially lower, making them more affordable than personal loans.
Compare private student loans and personal loans in our marketplace to see for yourself. Student loan rates start at roughly 4% for private loans, but the best personal loan deals start at around 7%.
Because private student loans have lower interest rates, they are a more affordable option. A personal student loan from a lender like College Ave is usually the most reasonable option if you borrow to pay school costs or refinance student debt.
Disbursement of loan funds
Another important distinction is the way lenders disburse private student loans and personal loans.
After the loan has been granted, the money is placed into the borrower’s account. Finally, the loan arrangement was signed off on by both parties. After that, the borrower can do whatever they want with the money.
Private student loans, on the other hand, are processed differently.
Initially, student loans are sent to your financial assistance office for processing.
The financial aid office uses your student loan money to pay off any unpaid tuition or other payments.
After that, you can claim any remaining money and use them towards the educational expenditures that you have to pay for out of pocket.
Borrowers who have finished school can refinance their student debt with private student loans.