One can argue that student loans are the worst, and they could be right. Unlike home loans or auto loans which are usually availed by well-settled and financially strong individuals, student loans are to be repaid by young professionals who have just started their carrier. Needless to say, they are often live on a shoe-string budget and have to put a cap on all kinds of expenses to pay off the student loan debt. So, the question is- can a personal loan be used for paying it off?
It makes sense, right? Since a personal loan can be used for any “personal” reason, why not repaying student loan debt? In most cases, you are right in believing the same. However, it’s important look at the idea from all perspectives.
The Bird’s-Eye View
The most important reason why you would want to take a personal loan to pay off student loan debt is to enjoy a better interest rate. If that’s not the case, you don’t have much to earn from the deal.
You want to reduce your EMIs and hence the financial pressure. Replacing a high-interest loan with a low-interest one is one way to go. However, if you are not able to get a personal loan with a lower interest rate then there is no point in applying for it even. You also need to see if the interest rate difference is enough, to say the least.
You must take your time understanding the impact of the “personal loan for student loan” idea. For instance, you need to check if your lender will charge a prepayment fine for repaying the student loan debt sooner than the due date for term’s end. If that’s affirmative, you should add that to the total cost and again compare with the lower interest rate benefit with the personal loan. If it doesn’t make sense anymore due to the additional cost, getting a personal loan may not be the best idea.
Is it Even Possible?
Many students are able to get student loans by having their parents sign as guarantors. This is because they don’t have much of a credit history to show for. Their score is also low. Thus, if you are going to apply for a personal loan, you might take a peek at your credit report first. If your CIBIL rating is below 500 you will have a hard time getting a personal loan to start with. Even if you are able to get one it will at stern terms and conditions.
Many lenders don’t even allow using a personal loan for paying off student loan debt irrespective of the applicant’s credit history. That’s because they are not confident enough in young credit users.
What are Some Better Options?
You shouldn’t ignore the idea of taking a personal loan for paying student loan debt. In fact, it’s a good idea if you are able to get a loan at a lower interest rate and ensure that it won’t affect your credit score in the process. However, if this is not possible; you have other options too:
Borrowing Money from Family
In tough times, we often turn to our families. So, if your student loan debt is giving you nightmares, there is no need to shy away from asking your parents for some money.
Using Credit Cards
The idea of using credit cards for paying personal loans, student loans, etc. is actually quite old. However, it may work if you are careful. If the interest rate on your credit cards is lower than that on the student loan then you can use them for its repayment. However, credit card debt increases fast. So, be sure to crunch the numbers well before jumping to any conclusion.
The way you use credit cards or repay loans can affect your credit report. Thus, it’s important you are careful with your finances. If you are planning to pay off your student loan with credit cards or a personal loan, it might be a good idea to consult a professional who can check your financial status closely and suggest the best way to go about it.