Students Loans are better for those enrolled in school
Taking out a loan of any kind is an important decision. Understanding the terms of the loan is important to avoid costly mistakes. There are two loan products customers often consider depending on their needs: a student loan or a personal loan. Student loans usually carry lower interest rates than other loans, but there are other factors to consider. A student loan is ideal if the borrower needs funds to pay for educational costs such as tuition and books so the options are more limited. Personal loans require a credit check as part of the application process so this might not be feasible for a student without a cosigner. If the student loan is from a federal institution however, there are no minimum requirements for credit score or income. For both types of loans there is no collateral needed to qualify for the loan so they fall into the unsecured loan category.
If a borrower qualifies for a student loan the funds can only be legally used for expenses incurred while attending college. On the other hand, if a borrower qualifies for a personal loan the money can be used for practically any expense. Borrowers may use the money without stating their intended use. The money is given to the borrower all at once and payback is made based on the terms of the loan. This is typically done by repaying monthly. Student loan interest rates begin at about 4%, while personal loan interest rates offer about a 7% interest rate, making them more attractive for students. There is a difference on how the money is given to the borrower. A student loan is only accessible to the school’s financial aid office. At the financial aid office, the money is used to cover tuition and fees then the borrower may claim any excess funds to pay their additional educational costs. In the case of a personal loan the money is deposited directly to the borrower’s account making it easier to access.
Both types of loans are available from banks and private lenders. Loans for personal use are also available from credit unions. There is a difference in the payback of the loan. For personal loan repayments begin after the first month the loan is provided. Loans for students are structured differently because they have a grace period where repayment begins a minimum of six months after graduating. In comparison one major difference between the loans is the tax advantages of interest payments. Student loans are tax deductible whereas there are no tax incentives for a personal loan. In comparison drawbacks for personal loans are the higher interest rates and that repayment begins almost immediately. These types of loans are often used for buying cars, paying for weddings, or housing costs. Loans for students are very restrictive, but the attractive interest rates make it is very easy to borrow more than what is really needed. Depending on needs both are advantageous. Personal loans can be used for school, but student loans are more ideal because the borrower may concentrate on their studies without having to pay back immediately. A loan specifically for students is ideal since it offers a long–term plan with a low interest rate. For a loan that is for a short–term investment a personal loan is more ideal.