You may have used federal or private student loans to cover tuition, housing, textbooks, and other higher education expenses. Unfortunately, you may still need extra money to survive the rest of the semester or to cover a financial emergency.
Credit cards may be an option, but a personal loan may be better. Interest rates for personal loans are often lower than those for credit cards. Plus, some lenders offer fast financing so you can get back on track right away. However, before you decide whether a personal loan is right for you, there are some factors to consider.
Personal Student Loans vs Student Loans
Personal loans and student loans can help you survive financially while in college. However, having both can be dangerous when it comes time to pay back what you owe and your income is low.
With federal loans, you may qualify for an income-driven repayment plan. However, private lenders are not always generous. If you fall behind on your loan payments, you risk damaging your credit, regardless of your loan type.
Personal loans differ from student loans in several important ways:
- Type of loan: Student loans are unsecured, meaning they are not backed by collateral. Many personal loans are also unsecured, but some are secured and require collateral to secure financing.
- Eligibility Criteria: To qualify for a personal loan with competitive terms or a private student loan, you generally need good or excellent credit and a steady source of income. However, federal student loans are issued based on your academic standing.
- Usage: Many lenders do not allow you to use personal loans for tuition costs. This is usually not allowed by most lenders. Otherwise, you can spend them however you want. On the other hand, federal and private student loans may only be used for higher education expenses, including tuition, fees, books, housing, and supplies.
- Financing: Personal loans are deposited into your bank account and student loans are sent to the school’s financial aid office.
Ultimately, student loans are ideal if you’re looking for money to cover study-related expenses. But if you need a more flexible financing option to pay for other types of expenses, a personal loan may be the best choice.
Advantages and disadvantages of taking out a personal loan as a student
As a student, you may qualify for a personal loan, but it may not be a smart move financially. Weigh the pros and cons before proceeding.
Plus points
- Fast financing times: It may take some time for student loan proceeds to be disbursed to you, but most personal loan lenders offer financing within the same week of approval.
- Lower interest rates than credit cards: As of April 2024, the average interest rate on personal loans is 12.21 percent, compared to the average credit card APR of 20.75 percent.
Cons
- More expensive than student loans: If you can get a federal student loan, you can get a better interest rate than a personal loan. The interest rate on Direct Subsidized and Direct Unsubsidized federal student loans is currently 5.50 percent and 7.05 percent for undergraduate and graduate students, respectively.
- No delay: You’ll start paying back personal loans the following month, but most student loan providers give you the option to defer payments until six months after graduation.
- Your assets could be at risk: If you get a secured personal loan, you risk losing your assets if you fall behind on monthly payments.
Lenders that offer personal loans for students
These fintech startups can provide personal loans to students even if you are not currently employed or have little to no credit history.
Upstart
Upstart offers personal loans up to $50,000, with repayment terms ranging from three to five years. What makes Upstart a good choice for students looking for a personal loan is that the company uses an AI-powered underwriting process that considers more than just your credit score and income.
Unlike most personal loan lenders, Upstart has no minimum credit score requirement. This alone makes it an ideal choice for students who may not have built a solid credit history yet. In addition, the company offers next-day financing. The downside is that Upstart loan APRs are capped at 35.99 percent and carry an origination fee of up to 12 percent of the total loan amount. These costs can make your loan quite expensive.
Kor
KoraCash is available to students and recent graduates with a .edu email address. You must also be at least 18 years old and have a valid Social Security number and acceptable credit history.
It’s offered through fintech startup Kora, and you can qualify for up to $3,000 with a loan term of up to 24 months. Loan payments are reported to the major credit bureaus – Experian, TransUnion and Equifax – to help you build a positive credit history.
Kora currently lends in Arizona, Arkansas, California, Florida, Illinois, Iowa, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Utah, Washington and Wisconsin. If you don’t live in one of these states, it’s best to pursue other options.
What should you do if you do not qualify for a personal loan?
If you don’t qualify for a personal loan yourself, consider getting a cosigner to increase your chances of approval. You can also ask your parents or another family member to take out a loan on your behalf or lend the money directly to you.
In short
If you are experiencing financial difficulties, a personal loan may be a cheaper option to get the money you need. But it is not without risks and you should consider the pros and cons before signing up. Depending on your situation and how you plan to use the money, a student loan or other source of financing may be better suited. If you do opt for a personal loan, research how to compare installment loan providers to ensure you choose the right one.
