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Compare personal loans vs. student loans
With each offering its own benefits, we help guide you toward the best decision for your wallet.
There are some solid benefits to both personal loans and student loans when it comes to paying for school. Personal loans have less limits on how you spend your funds but student loans are typically more flexible. Which option is right for you depends on your unique situation.
Quick snapshot: 6 ways personal loans and student loans differ
|Personal loan||Student loan|
Nearly any legitimate purpose, though some restrictions may apply
May only be used for secondary education expenses
Many lenders can directly deposit your funds into a bank account
Your school’s financial aid office receives your loan funds
Banks, credit unions and private online lenders
Federal government, banks and private online lenders
Repayments generally start after the first month
Repayments generally start after a grace period of at least six months after graduation
Interest paid is often deductible from your annual taxes
Can be discharged through bankruptcy
Much more difficult to discharge; may require a court appeal
Compare top online personal loans and student loans
What’s the difference between a student loan and a personal loan?
Personal loans can be used for just about anything, though some lenders restrict how you spend your loan funds. On the other hand, student loans have just one purpose: being used for secondary education expenses.
These differences mean you need to break down a few points to see how they compare.
What are the benefits of personal loans and student loans?
- Use funds for any purpose. In general, you’re free to use the money you receive from a personal loan for just about anything, although your loan contract may prohibit you from spending your money on anything beyond the original purpose.
- It’s simple to apply. Personal loans have much less strenuous requirements than student loans. You won’t need to have any documentation verifying your education with a personal loan.
- Lower interest. Student loans often come with lower interest rates when compared to general personal loans. You may qualify for a government-subsidized loan, which could come with even lower rates.
- Repayment flexibility. Depending on your loan and lender, you may be able to make interest-only or no payments at all while you’re studying. Student loans also tend to come with longer repayment terms of up to 20 years.
What are the drawbacks of personal loans and student loans?
- Higher interest. The interest rates that come with personal loans are often higher than specialized loans designed for cars, education or housing.
- Repayments start immediately. You get no grace period when it comes to payments. Instead, you’ll start paying toward your loan’s principal and interest soon after approval. Most personal loan lenders also don’t offer benefits that protect you in the event of financial hardship.
- Funds restricted to education. You must use your funds toward tuition, textbooks, housing and other education-related expenses.
- It’s easy to borrow too much. When facing the cost of tuition, housing and other potential expenses, you can end up overestimating how much you actually need. Remember that you’re paying interest on the full amount.
Which borrowing option is better suited for me?
A personal loan may be a better option if you need money for more than just education. They can help with day-to-day expenses that may come up, or your loan funds can be used to pay for a unique trip during your college experience that you may not be able to take without a little extra funding.
However, if you know you’ll want a long term and more flexibility when it comes to payment, a student loan may be a better choice. Because they have lower interest rates and don’t require you to start paying back immediately, you can focus on your education without needing a job or payment plan.
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Personal loans and student loans have their own unique features that make them regular borrowing choices for students across the US. If you’re looking for quick turnaround and only need a small loan, a personal loan may be better for your budget. But if you’re going to need to pay for four years of education expenses, the low interest and payment flexibility of a student loan may be more appealing.
You can read more about how student loans work and personal loans work by ready our guides. Carefully compare your loan options and weigh all the benefits with the drawbacks. After all, you’ll be paying for the next few years of your life.
Frequently asked questions
Explore personal loans and student loans even further with these answers to common questions.
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