In general, you should not use a personal loan to pay for your education. For one thing, most lenders don’t allow personal loans to be used for education expenses, and even if they did, most students don’t have the credit history to qualify. . Although it may be tempting to take out a personal loan to help cover college costs, student loans are almost always the best option.
Why You Shouldn’t Use a Personal Loan for College Expenses
Due to federal regulations, many personal lenders do not allow borrowers to use funds for college. Federal and private student loans are almost always better financing alternatives because they are created specifically for students with their unique financial needs in mind.
Although personal loans and student loans are similar in concept – you borrow money up front and pay it back over several years with interest – they are designed for different use cases.
Personal loans have high interest rates that are based on financial health and credit history, so if you have a weak or thin credit history, it will be difficult to get a reasonable interest rate or even get paid. to be approved at all. Personal loans also have immediate repayment, with the first payment usually due 30 days after receiving your funds.
Student loans, on the other hand, are specifically created for educational purposes. They often have interest rates below 10% and most federal student loans don’t even require a credit check. Student loans have longer repayment periods than personal loans, making payments manageable if you’re borrowing tens of thousands of dollars, and you often don’t need to start making payments for at least six months. after leaving school.
What can I use a college personal loan for?
Although you must use a student loan to pay your tuition, you may be able to obtain a personal loan for certain non-academic expenses. Technically, you can use a personal loan to cover:
- To rent.
- A personal laptop.
However, keep in mind that student loans can cover almost all of these things – from textbooks and personal equipment to housing and transportation. Before taking out a personal loan, check to see if the items you need could be covered by a student loan.
If you decide to take out a personal loan, you will likely need an established credit history and stable income to be approved. You will also need to ensure that you have the necessary funds to make the monthly payments in full and on time. Try to minimize the amount you borrow, especially if you also take out student loans.
Most importantly, read the fine print before you sign on the dotted line to make sure you’re borrowing within your lender’s authorized usage criteria.
Are there specific personal loans for students?
Most personal lenders do not offer student-specific personal loans, as education costs often fall under a prohibited use. However, there are personal loans created for those with bad credit or thin credit history. Keep in mind that even if you can get approved for these loans, your interest rate could be in the double digits.
The bottom line
When it comes to college expenses, always look to student loans before personal loans. Student loans are created to finance higher education and they can cover almost anything you will need to buy during your college career.
Borrowing a personal loan as a student can lead to high interest debt; if you decide to apply for a personal loan, borrow only for the essentials.