How to Get a Personal Loan for Students in India

An educational loan is provided for a specific purpose and can be used only to pursue a course you have mentioned when applying for the loan. It can cover all the study-related expenses incurred during the course duration. For example, it generally includes admission fees, tuition fees, library fees, the cost of a laptop, books, travel tickets (if you are studying abroad), etc. You generally have to pay a certain percentage of the total cost of a course by yourself.

Since an education loan is specifically meant for students, the eligibility criteria differ from a personal loan. A student can apply for an education loan with a parent, guardian, or guarantor, and the loan is approved based on their income. A student is considered the main applicant, and the parent as a co-applicant. A student has to repay the loan after completion of the course. Typically, the banks/financial institutions give the students six months time after completing the course to start paying the EMIs. This exempted time to pay the EMIs is called a moratorium period. A student or a parent/guardian has to pay a simple interest charged by banks/financial institutions during the study/course period. And, after the relaxation period of 6 to 12 months, a student is liable to repay the loan.

Whereas a personal loan is an unsecured loan that does not require any collateral and can be availed with minimum documentation. Unlike an education loan, a personal loan can be used for various purposes as it does not come with any end-use restriction. It is an easy way to get funds to take care of various personal and financial needs, and can be repaid according to the terms and conditions of the lender. A personal loan can cover your entire study expenses without any mandatory contribution from your side if you are eligible for that amount.

A personal loan is generally offered to individuals aged 21 and above with a minimum monthly income of at least Rs 15,000 to Rs 25,000. Since it is an unsecured loan, your credit history and credit score play a major role in the loan approval process. Hence, a personal loan could be ideal for professionals who want to pursue their higher education for better opportunities. However, students with no work experience and income can apply for a personal loan for education as their parent or guardian is the main applicant. It is advisable to check the personal loan eligibility criteria beforehand, as in India, many lenders do not offer personal loans to students.

What Are the Steps to Follow While Availing of a Personal Loan for Students?

1. Calculate the Exact Requirement:

While availing of a personal loan for education, it is crucial to know your requirement first. You should know the exact amount you need for course fees and other study-related expenses as, unlike an educational loan, a personal loan is a one-time loan. This will help you borrow sufficient funds for all your study-related expenses and avoid over-borrowing, saving your interest outgo.

2. Check Your Eligibility:

There could be a difference between the personal loan amount required of you and the amount you are eligible for. Hence, once you know your requirement, you should check your loan eligibility. The lenders use several parameters to calculate your loan eligibility, such as credit score, credit history, age, employment status, monthly income, existing loans, etc. Your credit score plays a significant role in calculating your repayment capacity. Since personal loans are unsecured loans, lenders would be inclined to offer you the loan only when you have a good to excellent credit score. Many websites let you check your eligible loan amount through online calculators. Once you provide your financial details, it will show the approximate loan amount you are eligible for. If you are not working or do not have a sufficient income, you need to check the eligibility of your parent or guardian, who is the main borrower.

3. Find the Right Lender:

When it comes to availing of a personal loan, there are a plethora of options, as almost all banks and NBFCs offer personal loans. However, to get the maximum benefits, make sure you compare different lenders on different parameters like rate of interest, processing fee, late payment charges, pre-closure charges, convenience to apply and repay the loan, customer reviews, etc., and choose the right lender.

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4. Calculate Your EMI:

Based on the loan amount, loan tenure, and lender's rate of interest, you can calculate your monthly instalment online. Unlike education loans, the personal loan EMI starts immediately. Hence, make sure you or your parent/guardian can comfortably repay the loan amount you are opting for, and monthly instalments will not create financial stress.

5. Approach the Lender:

Once you have finalised the loan amount and lender, it is time to apply for the personal loan. You can apply for it online from the comfort of your home or visit the nearest branch of the lender. Before applying, it is advisable to get all the minor details of the personal loan, including the terms and conditions, and make sure there are no hidden fees and charges. Also, make sure you have all the necessary information and documents ready.

What Are the Factors You Should Consider While Availing of a Personal Loan for Students?

A personal loan has its advantages and disadvantages; here are the factors to consider before you avail of a personal loan for students:

1. Rate of Interest:

The rate of interest is the major deciding factor because personal loans have the highest rate of interest, and it generally ranges from 12% to 28% p.a. In contrast; education loans have interest rates between 6% to 13% p.a. When your personal loan repayment tenure is longer up to 4-5 years, you end up paying a lot more than the principal amount. Advisably, if your credit history is sound and your credit score is high, you can use it as leverage to negotiate a better rate of interest with your bank.

2. Collateral:

The biggest advantage of a personal loan is that it does not require any collateral, which means you do not have to pledge any assets as you would for other secured loans, such as Loan Against Property. Since personal loans are unsecured, not having collateral ultimately increases the rate of interest.

3. Processing Fee:

The banks or financial institutions charge a certain amount to process your loan application. This processing fee can range from 1% to 3% of the loan amount, which is similar to the processing fee charged on an educational loan. If you are a long-time customer of the bank and have a good CIBIL score, you can always negotiate the processing fee.

4. Pre-payment Charges:

It is prudent to part-pay or foreclose your loans to save the interest payment on future EMIs as you start working or get adequate funds. Remember that most banks and financial institutions charge pre-payment fees if you want to part-pay or foreclose your personal loan. The charges vary from company to company and generally range between 2% to 5%, which makes a big difference, especially when the dues are high.

How to Apply for a Personal Loan Online?

Applying for a personal loan online is the most convenient and faster way. Follow these steps to apply for a personal loan online:

• Once you have finalised the lender, visit the official website of the lender (some lenders also offer the service through their mobile apps)

• Go to the loans sections and choose Personal Loan

• Click on 'Apply Now'

• Enter your personal details and submit the form

• The lender will assess your details, and you will receive a call or SMS accordingly

• You will have to upload the necessary documents asked by the lender or request a document pick up

• Once approved, the lender will immediately disburse the loan amount into your registered bank account

• The process will be even faster and easier if you are an existing customer of the lender as you can also apply from internet banking

How to Apply for a Personal Loan Offline?

• Visit the nearest branch of the bank/NBFC

• The bank/NBFC representative will guide you through the process

• You will have to submit a duly filled and signed personal loan application form along with the necessary documents as requested by the lender

• Once the loan is approved, the funds will be credited to your registered bank account

Should You Opt for a Personal Loan for Students?

To finance your education, an education loan is the best choice as it does not require you to have a steady income and can be availed of at an attractive interest rate. On the other hand, a personal loan is a costly option to finance your education as repayment starts immediately and can take a longer time. Besides, if you are not earning, your parent or guardian has to be the main applicant, and the eligibility will be based on their credit score and income. However, if you are not eligible for an educational loan due to any reason or need funds to pay the mandatory education loan contribution, you can consider opting for a personal loan. Before availing of a personal loan, ensure you thoroughly read the terms and conditions and loan agreement to avoid any unpleasant surprises in the future.

Warm Regards,
Ketki Jadhav
Content Writer