Personal loans can help cover personal expenses once you exhaust student loans.
Personal loans feature fast funding times and attractive rates, but they are often more expensive and lack the perks of student loans.
Weigh the pros and cons of each option to make an informed decision.
Taking out federal or private student loans can help you cover tuition, housing, textbooks and other higher education expenses. Unfortunately, you may still need additional funds to survive for the remainder of the semester or cover a financial emergency.
One option is opening a credit card, but a personal loan may be better. Personal loan interest rates are often lower than credit card rates. Plus, some lenders offer fast funding to help you get back on track right away. Before deciding if a personal loan is right for you, there are some factors to consider.
Pros and cons of using a personal loan for college students
Even if you can qualify for a personal loan as a student, it may not be a smart financial move. You’ll want to weigh the pros and cons before moving forward.
Pros
Fast funding times: It could take some time for student loan proceeds to be disbursed to you, but most personal loan lenders offer funding within the same week after approval.
More expensive than student loans: If you can get a federal student loan, you could get a better interest rate than you would with a personal loan. The interest rate on Direct Subsidized and Direct Unsubsidized federal student loans is currently 6.53 percent and 8.08 percent for undergraduate and graduate students, respectively.
Usage restrictions: Many personal loan lenders restrict the use of loans for education expenses, unlike student loans. You can likely use a personal loan for expenses outside tuition and fees, but you’ll have to confirm with the lender first.
No deferment: You’ll start repaying personal loans the following month, but most student loan lenders 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.
No income-driven repayment option: With federal student loans, you may qualify for an income-driven repayment plan aimed at ensuring you can afford your payments. Personal loans lack such plans.
Personal loans for students vs. student loans
Personal loans differ from student loans in a few major ways:
Loan type: Student loans are unsecured, which means they aren’t backed by collateral. Many personal loans are also unsecured, but some are secured and require collateral to secure funding.
Eligibility criteria: You’ll typically need good or excellent credit and a steady source of income to qualify for a personal loan with competitive terms or a private student loan. However, federal student loans are issued based on your academic status.
Usage: Many lenders won’t let you use personal loans for tuition-related expenses are typically off-limits with most lenders. Otherwise, you can spend them as you see fit. On the other hand, federal and private student loans should only be used for higher education expenses, including tuition, fees, books, housing and supplies.
Funding: 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 seek funds to cover college-related expenses. But if you need a more flexible funding option to pay for other types of expenses, a personal loan may be best.
Where to get a personal loan for students
Banks, credit unions and online lenders may provide personal loans for college students, even if you aren’t currently employed or have little to no credit history. A few examples of lenders that may offer personal loans to students are:
Most lenders don’t allow students to use personal loans to pay for tuition and fees — often listed as education-related expenses — but you can use the loan proceeds to pay for other expenses, including housing and financial emergencies.
That said, it may not always be the best option. Before moving forward with a personal loan for school, compare lenders. You’ll want to check to make sure you can use the funds the way you need to and afford repayment.
Alternatives to using a personal loan for school
If a personal loan isn’t a good fit, you’re not entirely out of luck. You may qualify for free funding sources, including scholarships and grants. Ask your financial aid office about options that may be available to you.
Credit cards are also an option but should be used as a last resort. Credit cards can have high interest rates, and it can be difficult to limit spending. Another option is to pick up a part-time job or apply for a work-study program.
Bottom line
If you’re experiencing financial hardship, a personal loan could be a less costly option to get the funds you need. But it’s not without risks, and you should consider the advantages and disadvantages before you apply. Depending on your situation and how you plan to use the money, a student loan or other funding source could be a better fit.
Frequently asked questions
Can I get a personal loan if I am a student?
Yes, it is possible to get a personal loan as a student. However, you’ll need to provide proof of income and credit history to most lenders before they will let you borrow money. If you are a student with no job or no credit history, it may be difficult to get a personal loan.
Which is better, a personal loan or a student loan?
Deciding whether to take out a personal or student loan depends on a number of factors. If you are trying to pay for school, it’s best to start with federal student loans. These typically have more favorable interest rates and repayment terms. Fill out the FAFSA to figure out how much federal aid you can get. If you still need money for school, see if you can qualify for private student loans as they are typically designed to pay for college.
If you are a student needing money for expenses other than school, a personal loan may be better as student loans are only allowed to be used for tuition or room and board for college. Keep in mind that you’ll need to start making payments on a personal loan as soon as you open the loan.
