Education Loan vs Personal Loan – Which Is Better for Students?

The education loan vs personal loan debate isn't just about interest rates; it's about repayment pressure during your studies, visa acceptance, tax benefits, and the total cost you'll ultimately pay. For instance, a ₹10 lakh personal loan at 15% interest for 5 years means you'll pay ₹23,790/month starting immediately. The same amount as an education loan at 9.5% for 10 years (after moratorium) means just ₹12,900/month, and you don't pay anything while studying.

In this comprehensive guide, we'll break down the differences between a personal loan and an education loan, compare interest rates and EMI burdens, examine visa implications, and help you make an informed decision. Whether you're studying abroad or in India, understanding which loan fits your situation can save you lakhs of rupees and prevent visa rejection stress.

Education Loan vs Personal Loan – Key Differences

Understanding the difference between a personal loan and an education loan is crucial for making the right financial decision. Here's a comprehensive comparison:

This table clearly shows why the education loan vs personal loan comparison almost always favours education loans for funding higher studies.

What Is an Education Loan?

An education loan is a purpose-specific loan designed exclusively to fund higher education expenses. It's offered by banks, NBFCs (Non-Banking Financial Companies), and international lenders to help students pay for tuition fees, accommodation, travel, books, and other study-related costs.

Key Features of Education Loans

Purpose-Specific: Education loans can only be used for education-related expenses, such as tuition fees, accommodation, travel, books, equipment, and living costs during the course period.

Who Can Apply:

• Students admitted to recognised universities (in India or abroad)
• Co-applicant required (parent/guardian) in most cases
• No income required from the student

Moratorium Benefit: This is the biggest advantage of education loans. The moratorium period means you don't have to start repaying the loan while you're studying. Repayment begins only after:

• Course completion + 6-12 months (grace period for finding a job)
• This gives you time to graduate and secure employment before the EMI burden starts

Long Tenure: Education loans offer repayment periods of 10-15 years, making monthly EMIs much more affordable than those for shorter-tenure loans.

Lower Interest Rates: Because education loans are seen as "good debt" with lower default rates, banks charge lower interest rates compared to personal loans, typically 8-13% per annum.

Is an Education Loan a Term Loan?

Yes, an education loan is a term loan; specifically, it's a long-term secured or unsecured term loan with a defined repayment schedule and tenure.

What Makes It a Term Loan?

• Fixed tenure: You repay over a specific period (typically 10-15 years)
• Structured repayment: Regular EMI payments after the moratorium period
• Lump sum disbursement: The loan amount is paid either directly to the university or in instalments as per the fee schedule
• Defined end date: Unlike revolving credit (like credit cards), education loans have a clear end to repayment

Secured vs Unsecured:

• Secured education loan: Requires collateral (property, FD, LIC policy) for amounts typically above ₹7.5 lakh
• Unsecured education loan: No collateral required, usually for amounts up to ₹7.5 lakh or for loans to top-tier universities

So when someone asks, "Is an education loan a term loan?" Yes, it's a long-term loan with structured repayments, but it offers student-friendly features such as a moratorium and lower interest rates, which set it apart from other term loans.

What Is a Personal Loan?

A personal loan is an unsecured loan that can be used for any purpose, such as medical emergencies, weddings, travel, debt consolidation, or education. Unlike education loans, personal loans have no restrictions on how you use the money.

Key Features of Personal Loans

Unsecured Loan: Personal loans don't require collateral. Because banks have no security against default, they charge higher interest rates to compensate for the risk.

No End-Use Restriction: You can use a personal loan for any purpose, such as home renovations, vacations, medical expenses, or education. The lender doesn't monitor or restrict how you spend the money.

Short Tenure: Personal loans typically have repayment periods of 3-5 years. Some banks offer up to 7 years, but this is less common.

Higher Interest Rates: Personal loan interest rates range from 12% to 18% per annum (up to 24% for borrowers with lower credit scores). This is significantly higher than the cost of education loans.

Immediate Repayment: There's no moratorium period in personal loans. Your EMI starts from the very next month after loan disbursement, even if you're still studying.

Income Requirement: Unlike education loans (where the student doesn't need income), personal loans require the borrower to have a stable income and a good credit score for approval.

Personal Loan vs Education Loan Interest Rate

One of the most significant differences in the personal loan vs education loan debate is the cost of borrowing. Interest rates directly impact your monthly EMI and the total amount you'll repay over the loan tenure.

Education Loan Interest Rate

Education loans are among the cheapest loans available because they're considered "productive debt" Investment in education typically leads to higher earning potential and lower default rates.

Public Sector Banks:

• State Bank of India (SBI): 8.5-9.5% p.a.
• Bank of Baroda: 8.75-10% p.a.
• Canara Bank: 8.5-9.5% p.a.

Private Banks:

• HDFC Bank: 9.5-11% p.a.
• ICICI Bank: 10-11.5% p.a.
• Axis Bank: 10.5-12% p.a.

NBFCs:

• Credila: 10.5-12.5% p.a.
• Auxilo: 11-13% p.a.
• Avanse: 11.5-13% p.a.

International Lenders:

• Prodigy Finance: 10-12% p.a.
• MPower Financing: 10.75-12.99% p.a.

Personal Loan Interest Rate

Personal loans are unsecured and can be used for any purpose, which makes them riskier for lenders. As a result, interest rates are significantly higher.

Public and Private Banks:

• SBI Personal Loan: 11.5-14% p.a.
• HDFC Bank: 11-21% p.a.
• ICICI Bank: 10.75-19% p.a.
• Axis Bank: 12-21% p.a.

Fintech Lenders and NBFCs:

• Bajaj Finserv: 13-24% p.a.
• Fullerton India: 11.99-24% p.a.
• Tata Capital: 12-21% p.a.

Interest Rate Comparison Table:

What Does This Mean for You?

The education loan vs personal loan interest rate difference of 3-8% might not sound like much, but over 10 years on a ₹20 lakh loan:

• Education loan at 9.5% for 10 years: Total interest = ₹12.78 lakh
• Personal loan at 15% for 5 years: Total interest = ₹9.74 lakh (but EMI is ₹47,580/month vs ₹25,800/month for education loan)

While the personal loan's total interest looks lower, you're paying nearly double the EMI every month, starting immediately, with no moratorium period. If you calculate the opportunity cost of paying ₹47,580/month while studying (when you have no income), the education loan is far more economical.

Key Takeaway: The personal loan vs education loan interest rate comparison clearly shows that education loans are 3-8% cheaper, and when combined with moratorium benefits and longer tenure, they're financially superior for funding education.

Student Loan vs Personal Loan – Useful Comparison for Study Abroad

Visa Perspective: Student Loan vs Personal Loan

Embassy Preference by Country

 Proof of Funds Credibility

Education Loan vs Loan Against Property

EMI Comparison: Personal Loan vs Education Loan

Tax Benefits Comparison

Conclusion

In the education loan vs personal loan debate, the choice is clear for students planning higher studies. Education loans are purpose-built for education, offering lower interest rates, moratorium benefits, tax savings, and strong visa acceptance. Personal loans, with higher EMIs and immediate repayment pressure, can create financial and visa-related risks. For study abroad or long-term education funding, an education loan remains the smarter, safer, and more sustainable option.