Choosing the best kind of loan to fund your higher education is important before starting your studies. Many people opt for an education loan, however, there is a chunk of people who prefer availing a personal loan. So what is better when it comes to funding higher education, a personal loan or an education loan?
Education loan surely dominates the loan industry funding college education, but people often get confused wondering whether they should opt for a personal loan. Under all circumstances, the better option is to choose an Education Loan for Studies in India and Abroad, as it also offers lower interest rates. For example, Karnataka Bank Education Loan interest rate stands at 11.35%, while the bank’s interest rate for personal loan soars up to 13.15%.
Other multiple benefits like tax benefits are part of education loan schemes. These schemes consider the necessity of students and their future prospects. Due to this, they provide:
Longer Repayment Period
Lower Interest Rates
High Loan Amounts
Easy Disbursal Process
Let’s have a one-by-one look at how education loans are better than availing personal loans.
The biggest benefit of availing an education loan is that they come with income tax benefits. Under Section 80E of the Income Tax Act, 1961, the amount of interest submitted for an education loan can be deducted from the total taxable income. Moreover, such claims can be made up to 8 years beginning from the date of the first repayment.
Any personal loan does not provide such a benefit.
Education loans have a special provision of a moratorium period for the students availing them. As long as the moratorium period exists, students don’t need to repay their loan by submitting the instalments. This is done to accommodate the inability of students to pay back the money while they are pursuing the course and haven’t fetched any job. Generally, the moratorium period lasts Duration of Course+1 year.
In the case of personal loans, the monthly EMIs start as soon as the loan disbursement begins.
Education Loans also offer longer repayment period for students. As per the new policy of IBA, all the banks offering student loans under the mandate of the model IBA Education Loan Scheme need to offer a repayment period of 15 years.
On the contrary, personal loans generally allow a repayment period of only up to 5 years.
Banks and NBFCs offer lower interest rates to students on education loans as compared to personal loans. Even in the case of Bank of Maharashtra Education Loan, the interest rate is capped at 12.75%.
However, for the personal loan, the rate can go as high as 15.10%.
We are sure your doubt must be clear by now. So the next time you visit your bank, go for the education loan rather than any other experiment.
*The stats mentioned in the above article are subjected to changes by the bank authorities.