You may have used federal or private student loans to cover tuition, housing, textbooks, and other higher education-related expenses. Unfortunately, you may still need additional funds to survive the rest of the semester or to cover a financial emergency.
Credit cards might be an option, but a personal loan might be better. They often come with much lower interest rates than credit cards, and some lenders offer fast financing to help get you back on track right away. Yet, before deciding if a personal loan is right for you, there are downsides to consider. Some online personal lenders offer services specifically for students.
Student and Personal Loans
Personal loans and student loans can help you survive financially while in school. However, having both can be dangerous if it’s time to pay off what you owe and your income is low.
With federal loans, you may qualify for income-based repayment plans. However, private lenders are not always so generous. If you fall behind on your loan repayments, you risk hurting your credit rating, regardless of your type of loan.
Personal loans differ from student loans in several ways:
- Type of loan: Student loans are unsecured, which means they are not secured by collateral. Many personal loans are also unsecured, but some are secured and require collateral to secure the funding.
- Eligibility criteria: You will generally need good or excellent credit and a stable source of income to qualify for a personal loan on competitive terms or a private student loan. However, federal student loans do not have the same stringent eligibility criteria.
- Use: You are free to use personal loans as you see fit. But 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 are looking for funds to cover college-related expenses. But if you need a more flexible financing option to pay for other types of expenses, a personal loan may be better. Keep in mind that many lenders will require a co-signer if you don’t have a steady source of income and a good or excellent credit rating.
Companies offering student personal loans
You may qualify for a personal loan as a student through these fintech startups, even if you are not currently employed or have little or no credit history.
Fintech start-up MPOWER Financement targets high-potential students who are generally not eligible for loans from traditional banks. It offers fixed rate loans to more than 190 nationalities, including Americans, who attend an accredited school in the United States or Canada without the need for collateral. You also don’t need a co-signer or credit history to qualify.
Loan amounts range from $2,001 to $100,000 (total) and interest rate discounts of up to 1.50% are available. Once the loan is approved, the funds are sent directly to the university. You will only make interest payments during your studies and six months after you graduate.
If you want to prepay your loan, there are no prepayment penalties. Best of all, loan repayments will be reported to credit bureaus to help build your credit history.
KoraCash is available to students and recent graduates with an .edu email address. You must also be at least 18 years old with a valid social security number and an acceptable credit history.
It’s offered by fintech startup Kora, and you could qualify for up to $2,000 with a loan term of no more than 12 months. Loan payments are reported to major credit bureaus – Experian, TransUnion and Equifax – to help you start building 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 do not reside in one of these states, it is best to pursue other options.
Other personal loan options
If you’re unable to qualify for a personal loan on your own, consider bringing in a co-signer to boost your chances of approval. You can also ask your parents or another relative to take out a loan on your behalf or lend you the funds directly.
Home equity loans and home equity lines of credit are another option for getting the funds you need if you own a home. But they can be risky because your home is used as collateral. Additionally, it can be difficult to get approved if your income or credit score is low.
Advantages and disadvantages of getting a personal loan as a student
You may qualify for a personal loan as a student, but it may not be a wise financial decision. Consider these pros and cons before going ahead.
- Fast funding times: It can take a while for student loan proceeds to disburse, but most personal lenders offer fast turnaround times.
- Lower interest rates than credit cards: The average personal loan interest rate is 10.28%, compared to the average credit card APR of 16.13%.
- More expensive than student loans: If you can get a federal student loan, you might get a better interest rate than a personal loan. The interest rate on directly subsidized and directly subsidized federal student loans is currently 3.73% and 5.28% for undergraduate and graduate students, respectively. You will pay between 1% and 13% for a private student loan.
- No postponement: You will start repaying your personal loans the following month, but most student loan providers offer you the option of deferring payments until you finish your studies.
- Your assets could be at risk: If you benefit from a secure personal loan, you risk losing your assets if you fall behind on your monthly payments.
At the end of the line
If you’re struggling financially, a personal loan could be a less expensive option to get the funds you need. But it’s not without risks, and you should consider the pros and cons before applying. Depending on your situation and how you plan to use the money, a student loan or another source of funding might be a better choice.