Using a Personal Loan to Finance a Study Abroad Program: Pros and Cons

Studying abroad is a dream for many students. However, it is a costly affair and requires a significant financial investment. In such cases, a personal loan for education is a helpful idea. These are easy, simple, and unsecured loans. The lending institutions consider the applicant’s financial capacity, income, and credit profile while determining their loan amount, interest rate, and repayment schedule.

Many parents and students consider personal loans to cover their study abroad expenses. It is easy, quick, and requires no collateral. However, there are some considerable points too. Let’s look at the pros and cons of using a personal loan to finance a study abroad program.

What is a personal loan? Is it a Good Funding Option for Education?

Personal loans are unsecured loans that you may get without pledging collateral. People commonly use them for various planned or unplanned expenses. They are very helpful in any financial emergency.

Borrowers use them to pay for any or all of their educational expenses. They often have flexible repayment tenures from 12 to 48 months, allowing borrowers to select their preferred term with budget-friendly EMIs.

When is Funding Education with a personal loan a Good Idea?

The cost of study abroad programmes is touching the sky. Along with this, following are the major reasons people consider personal loans for education:

• personal loan interest rates are lower than other traditional loans and credit cards
  
• Personal loans have no end-use restrictions. Borrowers can use them to cover various study abroad-related expenses, including airfare, student visa fees, accommodation, study material and equipment, etc.
• personal loans provide instant money to cover various urgent or planned expenses

Pros of Funding Higher Education with a personal loan

Here are a few advantages of funding a study abroad programme with a personal loan for education:

personal loans for Education are easier to avail than Traditional Education Loans

Borrowers with decent credit scores can avail personal loans at best interest rates. APRs for these borrowers start at a very low range, and lending institutions offer them aggressive promotional rates to reduce their borrowing costs. Aspiring borrowers can compare loan offers and determine the fees and rates of each option before applying for a personal loan. Remember that personal loans also have flexible repayment terms. Applicants can use a personal loan EMI Calculator to calculate EMIs for various loan terms and opt for one with affordable EMIs.

Borrowers Can Use personal loans to Fund Any Study Abroad Programme

For better career opportunities, students aspire to go abroad for studies. Although a few organisations provide scholarship programmes, not all students get that. Besides this, traditional education loans are another option. But these loans come with their limitations too. Personal loans are viable financing options for such programmes as they have no end-use restrictions.

personal loans Provide Coverage for Short-Term Educational Expenses

Borrowers can select their repayment terms with affordable EMIs. They can use a personal loan to pay for various expenses while studying abroad, including lab fees, books, laptops, tech equipment, etc. Shorter repayment tenures of personal loans make the borrower debt-free sooner rather than keeping the liability for longer times.

personal loans Help Cover Various Expenses Other Than the Fees

Typically, lending institutions are happy to approve personal loans as long as the applicants have good credit scores and decent income streams. Once approved and disbursed, borrowers can use the funds for just about anything they want, including visa fees, transportation costs, food and lodging, etc. Those who pay their EMIs on time do not need to worry about repayment and stress about their finances. However, borrowing a loan is a big financial responsibility. Applicants must consider their income and financial obligations before applying for one.

Other than covering the education costs while studying abroad, borrowers can also get the following benefits from a personal loan:

• Help with debt consolidation for other loans and credit cards
• Improve the credit score
• Pay for an important events like a wedding 
• Refinance a student loan
• Pay for miscellaneous education-related expenses

Once the lending institution approves the loan application, borrowers can use the loan funds to cover all study abroad costs, including basic tuition fees, administrative fees, books, transportation, computer, lodging, boarding, school supplies, etc.

Cons of Funding Foreign Education with a personal loan

With easy repayment and low-interest rates, personal loans can impact a borrower’s long-term finances. These funding options can work for anyone, but knowing the cons is crucial as well. Here are a few:

• Although an education loan works well and has several advantages, it is still a debt with risks. It might have consequences, especially if the borrower does not pay their EMIs on time.
  
• The short repayment period makes EMIs heftier and more challenging to manage.
  
• Those who have just started earning may not have a good credit history. The lending institution may see them as high-risk borrowers, which eventually means higher interest rates.
  
• A personal loan often requires proof of sufficient income, which many young applicants might not provide.
  
• Personal loans are not tax-deductible, borrowers cannot claim a tax benefit from them. Borrowers can claim tax benefits in some instances, but unfortunately, that does not include education. 
• Personal loan interest rates are usually higher than that of Education loans. However, interest rates depend on various factors, including applicant’s eligibility and preferred repayment term.

Most borrowers effectively use personal loans for funding study abroad programmes. However, knowing how much they can safely borrow is crucial after evaluating their income and financial obligations. Maintain a high credit score and low debt-to-income (DTI) ratio to get the best personal loan and repay its EMIs on time to enjoy the maximum benefit.