While higher education is important, it is extremely expensive. It’s not just the tuition fees, but all the books and other supplies, as well as living expenses that add to the total amount of expenditure. However, just because higher education is expensive does not mean you cannot pursue it.
Today, there are various types of loans that you can take to help you pay for your education. While a student loan is the most obvious choice of loan, there is another option, but a less popular one available to you – a personal loan. If you don’t need huge amounts of money (say a few thousand dollars), a personal loan could be an apt choice for you. Let us learn more about what a personal loan is, how it is different from a student loan, and how a personal loan can help you pay for your college education.
What is a personal loan?
In simple terms, a personal loan is a type of unsecured loan which you can borrow from a lender to meet your financial needs. It does not require you to put up any belonging, like property or vehicle as collateral, which the lender can take in case you are unable to pay back the loan as stipulated in your agreement. This means that if you take out a personal loan, it is only secured by your promise or intent to repay the loan. Due to this, they are also commonly known as signature loans.
Personal loans usually have interest rates which are higher than that of secured loans including home loans and vehicle loans. The interest rate is fixed, most of the times, and you can pay the loan back within a period of one to five years. Usually, people take out personal loans ranging from an amount of $1,000 to around $5,000.
A good credit score is a must to qualify for a personal loan, as this is perhaps the only assurance for lenders that you will pay them back. Otherwise, they have only your words to rely on. If you have a good credit score, it shows that you are financially responsible and reliable, and it is easier for lenders to trust you in your ability to pay them back within the given time period.
Personal loan vs. student loan
Now that you understand what personal loans are and how they work, let us see how they differ from student loans. First of all, a student loan is an unsecured loan which is specially designed to help students fund their college education as well as related expenses like books and supplies, and living expenses.
Since it is designed especially for students, the interest rates are usually lower, and you don’t have to start paying until you’re out of college. In the US, there are two kinds of student loans available – federal loans and private student loans. The federal government provides the federal loans while the private student loans are sponsored by the school itself or non-profits affiliated with the state.
The main difference between a personal loan and a student loan is the rate of interest and the period of repayment. While student loans have lower interest rates, personal loans’ interest rates are much higher. Moreover, student loans have a repayment period which is much longer than personal loans. You have 25 years to pay back your loan if you work in the public sector or a non-profit, and 10 years if you work in a private sector. And as mentioned before, personal loans only have a repayment period of one to five years depending on the amount of the loan borrowed.
At first glance, student loans seem like a better option to fund your college education. However, if you look closely, you will find that it is not an ideal choice for everyone. If you take a student loan, you’ll have to spend years of your life working hard to repay the loan. This is a common issue faced by many working professionals all over the United States. This makes it difficult for them to start saving early, and since student loans are usually tens of thousands of dollars, it takes time till you repay your entire loan.
However, if you are someone who has some amount of college fund readily available, but needs only a few thousand dollars to help pay for related expenses, a personal loan may be a better option for you. Read on to find out how.
Personal loan for school
As we have discussed earlier, a personal loan is an alternative option (as opposed to a student loan) for anyone who wishes to pursue higher education but requires a few extra thousand dollars. Since you won’t be borrowing as much as you would in a student loan, you don’t have to waste almost half of your entire working life trying to pay it back.
One may contend that personal loans are not ideal since the rates of interest are much higher. But when you really think about it, it will still be not as much as you would have to pay back if you opt for a student loan. Even if the rates of interest are higher, the amount of the debt in a personal loan will be much lower. This means that personal loans will still cost you less than student loans will. However, keep in mind that this will work in your favor only when you don’t have to take out a huge amount to fund your education.
So, if you need a loan to help you pay for your college tuition and affiliated expenses like books and supplies, as well as living expenses, you can opt for an alternative instead of the traditional option of student loan. If you can manage to pay at least half or more than half of your college fund, and you need to pay the rest through loans, a personal loan will especially prove to be beneficial for you in the long run.