You may have relied on federal or private student loans to cover tuition, housing, textbooks, and other higher education expenses. However, you might still need extra funds to get through the semester or handle a financial emergency.
While credit cards are an option, a personal loan might be a better choice. Personal loans often have lower interest rates compared to credit cards. Additionally, some lenders provide quick funding to help you get back on track immediately. Nevertheless, before deciding if a personal loan is suitable for you, there are several factors to consider.
Personal loans for students vs. student loans
Personal loans and student loans can provide financial support while you’re in college. However, juggling both types of debt can be risky, especially if your income is low when it’s time to start repaying.
Federal loans offer some flexibility, such as income-driven repayment plans, but private lenders are typically less accommodating. Falling behind on loan payments can damage your credit rating, regardless of the loan type.
Here are some key differences between personal loans and student loans:
- Loan Type: Student loans are unsecured, meaning they don’t require collateral. Many personal loans are also unsecured, but some may require collateral.
- Eligibility Criteria: To qualify for a personal loan with competitive terms or a private student loan, you’ll generally need good credit and a steady income. Federal student loans, however, are issued based on your academic status.
- Usage: Personal loans can be used for a variety of expenses, but many lenders prohibit their use for tuition-related costs. Conversely, student loans are intended strictly for educational expenses like tuition, fees, books, housing, and supplies.
- Funding: Personal loans are typically deposited directly into your bank account, while student loans are sent to the school’s financial aid office.
In summary, student loans are ideal for covering college-related expenses. If you need a more flexible funding option for other types of costs, a personal loan might be a better choice.
Pros and cons of getting a personal loan as a student
You might qualify for a personal loan as a student, but it’s essential to weigh the pros and cons before proceeding.
Pros
- Fast Funding Times: While student loan disbursement can take a while, most personal loan lenders provide funding within the same week after approval.
- Lower Interest Rates Than Credit Cards: As of May 2024, the average personal loan interest rate is 12.20%, compared to the average credit card APR of 20.66%.
Cons
- More Expensive Than Student Loans: Federal student loans often have lower interest rates. Currently, Direct Subsidized and Direct Unsubsidized federal student loans have interest rates of 5.50% and 7.05% for undergraduate and graduate students, respectively.
- No Deferment: Personal loans require repayment starting the following month, whereas most student loan lenders allow deferment until six months after graduation.
- Risk to Assets: Secured personal loans put your assets at risk if you fall behind on payments.
Lenders that offer personal loans for students
These fintech startups may provide personal loans for students, even if you aren’t 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 an attractive option for students is its AI-powered underwriting process, which considers more than just your credit score and income.
Unlike most personal loan lenders, Upstart doesn’t have a minimum credit score requirement, making it ideal for students who may not have established a solid credit history. Additionally, Upstart offers next-day funding. However, its loan APRs can be as high as 35.99%, and there is an origination fee of up to 12% of the total loan amount, which can make the loan expensive.
Kora
KoraCash is available to students and recent graduates with a .edu email address. To qualify, you must be at least 18 years old with a valid Social Security number and an acceptable credit history.
Offered through fintech startup Kora, you could qualify for up to $3,000 with a loan term not exceeding 24 months. Loan payments are reported to the major credit bureaus — Experian, TransUnion, and Equifax — helping 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 reside in one of these states, it’s best to explore other options.
What to do if you don’t qualify for a personal loan
If you’re unable to qualify for a personal loan on your own, consider getting a co-signer to strengthen your approval odds. Alternatively, you can ask your parents or another relative to take out a loan on your behalf or lend the funds to you directly.
In Conclusion
If you’re facing financial hardship, a personal loan could be a more affordable option to get the funds you need. However, it comes with risks, and you should weigh the pros and cons before applying. Depending on your circumstances and intended use of the funds, a student loan or another funding source might be a better fit. If you decide on a personal loan, be sure to research and compare installment loan lenders to ensure you choose the right one.