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Personal Loan Vs Education Loan – Key Differences & Similarities!

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Studying abroad is challenging, as is adapting to new cultures, lifestyles, environments, and living costs. Students often resort to financial aid to fund their higher education journey in an international college/university. While at it, many students consider taking loans but often find it challenging to choose between a student loan vs personal loan. This article will clear the air, give insightful information on personal loan vs education loan, and explain which one works best and for what. 

Difference Between Personal Loan Vs Education Loan

Personal loans are different from educational loans in many aspects. It runs across various considerations, from the purpose of the loan, eligibility criteria, interest rates, repayment terms, and benefits and drawbacks. Some of the significant differences include:

Personal Loan Vs Education Loan AspectsEducation loanPersonal loan
PurposeMainly pay for educational expensesMainly pay for personal expenses
Eligibility criteria-Proof of student admission
-School name and course details-Security (optional)
-Proof of student admission
-Bank statements to show financial history/credit score
Interest rates9% to 10% on secured loans11.5% to 14.9% on unsecured loans11.49% to 13%
Loan tenure– 15 years1 – 5 years
Moratorium periodYesNo
Total loan amount– Up to INR 1.5 Cr for secured
– Up to INR 50 Lakhs for unsecured
INR 25 Lakhs
Grace periodYesNo
Flexible disbursementsYesNo

Overview Of Personal Loans Vs Education Loans

With the demand for scholarships at an all-time high, loans have been the go-to solution for international students, including Indian students, in funding their higher education. However, two major types of loans are awarded to students, and it takes time for students to decide which one will be ideal for their immediate needs.

What Are Personal Loans?

As the name suggests, personal loans are funding options students borrow to cover their expenses. This money is meant to cover specific student needs at the time of application. Personal loans are intended to cover costs such as purchasing home appliances, buying a car, covering particular expenses, or, if applicable, funding your tuition fees.

Personal loans are unsecured, meaning you don’t have to pledge collateral against them. Lenders often consider borrowers’ repayment capabilities, income, credit score, and financial history. These factors help lenders estimate the ideal amounts to issue an applicant. With a high risk involved and considering the loan isn’t secured, personal loans often have high interest rates. It makes them not an ideal funding option in the long term, and repayment is made in instalments without any moratorium.

What Are Education Loans? How Do They Work?

On the other hand, education loans are money awarded to students to cover their higher education expenses. This financing option mainly oversees students’ tuition, accommodation, food, clothes, and other costs within the school setting. Indian students can take education loans whether they study in India or abroad. There are two types of education loans:

  • Secured education loansa.k.a government bank education loans- require students to pledge some collateral. They have lower interest rates than personal loans due to the collateral security. They are also a student favourite due to their easy policies and reliability.
  • Unsecured education loansthis is an education loan without collateral. Private banks and non-banking finance companies likely award them. These loans have higher processing costs than secured education loans due to a lack of collateral security. They are ideal for students who don’t have enough security to put against their loan requests.

Education loans have terms of up to 15 years, and amounts depend on several factors, including the educational institution’s ranking and the co-applicant’s financial records.

Factors Which Make Education Loans A Better Choice For Funding Education Abroad

Indian students pursuing higher education abroad always struggle to establish the difference between personal loans and education loans. However, it always comes down to the purpose of the loan. Education loans rank superior to personal loans in funding your education in an international college/university for several reasons. The reasons why students are opting for education loans vs personal loans include:

  • Moratorium period – students take time to start earning and be financially stable after graduating. Lenders give them a moratorium period lasting through the entire programme period. Furthermore, there is a 6 to 12-month grace period before beginning their repayment. 
  • Interest rates – education loans offer lower interest rates than personal loans. Government banks charge 9% to 10% on secured loans, while NBFCs and private banks charge 11.5% to 14.9% on unsecured loans.
  • Eligibility to subsidy – the Indian government introduced interest subsidy schemes on education loans for students of particular social categories. It is only issued by prominent government banks, and only eligible candidates can enjoy an education loan subsidy and its benefits.
  • Loan tenure – higher education institutions annually revise their tuition fees, and they are at an all-time high and expected to go higher. These amounts can often exceed INR 10 Lakhs, but lenders often offer an extended repayment period of 10 to 15 years.
  • Income tax benefit – all education loan applicants will be exempted under Section 80 E of the Income Tax Act. The percentage of exempted amount will reflect their salary bracket.

Why Do Individuals Apply For Personal Loans For Higher Education Funding?

With countries like Germany charging almost zero tuition fees, there has been a notable observation of Indian students opting for personal loans for higher education funding. This is because they only need to cover their living expenses during their period at the college/university.


Q1. Which Is Better, an Education Loan or a Personal Loan?

It depends on your needs, but generally, education loans are ideal for funding your higher education expenses, while personal loans cover personal costs.

Q2. Which Type of Loan Is Better for Funding My Education, a Personal Loan or an Education Loan?

An education loan is better for funding your education.

Q3. Can I Use a Personal Loan to Pay For My Education Expenses Instead of Taking Out an Education Loan?

While this is an option, it tends to attract higher interest rates, harsh repayment terms, and lower amounts.

Q4. What Are the Key Features of a Personal Loan Compared to an Education Loan?

Personal loans don’t require security but are at the expense of benefits such as moratorium and grace periods, shorter tenure periods, lower amounts, high-interest rates, and a lack of flexible disbursements.

Q5. Are the Interest Rates on Education Loans Generally Lower Than Those on Personal Loans?

Yes. Interest rates at the rate of interest rates on the market fluctuation. Please refer to the official lender’s handbook for this. 

Q6. Can I Qualify for a Personal Loan if I Already Have an Education Loan?

Yes, one can qualify for a personal loan despite having an education loan in their name. 

Q7. How Do the Repayment Terms Differ Between Personal Loans and Education Loans?

Education loans have better repayment terms like moratorium and grace periods, more extended tenure periods, high loan amounts, lower interest rates, and flexible disbursements.

Q8. Are There Any Tax Benefits Associated with Taking an Education Rather than a Personal Loan?

Education loans have interest subsidy schemes for specific categories of society, and they can enjoy some tax benefits.

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Personal Loan Vs Education Loan – Key Differences & Similarities!

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