Personal Loans for Students
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At a Glance
College can be painful in terms of personal finance. Students often have little to no income due to a primary focus on studies or participation in unpaid internships. But what if you need additional money to cover living expenses not covered by student loans? It might be the perfect time to look into personal loans for students.
In this article, you’ll learn:
Why you should consider student loans first?
If your financial need is educational expenses, there are several benefits to student loans that make them a better option than a personal loan.
- The payback period is longer. Most student loans have repayment terms of ten years or more, while personal loans typically have three- or five-year terms.
- Interest rates are often lower. Federal direct loans average 2.75% for undergraduates.1 This is compared to 9.5% on average for personal loan interest rates.2
- Interest may be deferred until after graduation. Personal loans require immediate payback. In contrast, certain student loans may have a grace period of several years from when you take out a loan until payments are required.
- Repayment can be more flexible. Personal loans have a fixed interest rate and a predetermined payback period. Repayment of federal student loans may be paused or forgiven in certain circumstances, like a global pandemic or public service loan forgiveness program.
It’s important to note that personal loans cannot be used for tuition expenses. So, even after you’ve exhausted federal and private loan options, you’ll need to make sure your personal loan is used for non-tuition expenditures.
Reasons students take out personal loans
Often, we think of college as a period of little income, but also low expenditure. You may be able to take out federal or private student loans to cover educational expenses like tuition and books. But what about for lodging, food, and entertainment? After the school takes money for tuition and fees, there may not be sufficient funds to cover living expenses (especially if you choose to live off-campus).
The reality is: these other basic needs need to be met. And for a student with no income or only a part-time job, it can be challenging to make ends meet. In this case, you may want to consider a personal loan.
Compare: Best personal loans
Personal loan vs. student loan
Personal loans and student loans are very similar, but there are some key differences.
It’s important to note there two different types of student loans: Federal student loans and private student loans. Federal student loans are funded by the government while private loans are offered by private third-party lenders. Federal loans have no credit check or income requirements while private loans do. Additionally, private loans may have higher interest rates than federal loans.
Some similarities between student loans and personal include:
- Both are typically unsecured, meaning no collateral is required.
- Both typically have fixed interest rates.
- Both come with monthly payments, which are made up of principal plus interest.
- They can be used to cover costs associated with college such as books, supplies, and equipment.
On the other hand, there are also several differences:
- Student loans can only be used for undergraduate and graduate expenses, while personal loans can be used for just about anything.
- Student loans typically have lower interest rates than personal loans.
- Federal student loans don’t require a credit check or income requirement, while private student loans and personal loans do.
Learn more: Student loan vs personal loan
How can students qualify for a personal loan?
Since personal loans are unsecured, lenders will rely heavily on your credit score and income as determining factors for eligibility. As a student, though, you may have limited or no income and no credit history (meaning you’ve not yet established credit). In this situation, you’ll need to provide lenders with an alternative means of guaranteeing you can pay back the loan.
One option is to ask a parent to cosign. As a cosigner, the lender will consider your parent’s credit score and salary, too. However, this also means that if you fail to make payments on time, your cosigner could be held accountable for the bill. So, tread lightly and make sure there is understanding on both sides before taking this route.
Since personal loans for students are more restricted, you will want to shop around with many lenders. To save time and stress, step through the pre-approval process with those lenders, which you can do in a few minutes online. That way, you get instant insight if you are eligible with a lender without dinging your credit score.
What are the best personal loans for students with no income?
The best personal loans for students with no income are those that lenders are willing to give. It’s important to note that these loans will likely come with slightly higher interest rates than if you have a stable income and very good credit. But the good news is they will probably still be less than a standard credit card.
If you can commit to paying back a fixed monthly amount, a personal loan might be a good option to help you through the rough financial times of being a student.