Can You Take a Personal Loan And an Education Loan Together?

A growing number of students studying abroad are relying on a mix of education loans and personal loans to cover their expenses. 

This trend highlights the importance of combining multiple financial tools to manage the rising costs of international education.

Education loans are designed to help cover tuition fees, living expenses, and other costs directly tied to your studies. Personal loans, on the other hand, are like a flexible safety net, offering funds for additional needs like travel, emergencies, or even setting up your new life abroad.

But here’s the big question: Can you take a personal and education loan at the same time? The answer is yes, but it requires a smart strategy and good financial planning.

Key Highlights:

• Education loans generally come with lower interest rates due to their targeted purpose, whereas personal loans, being unsecured, tend to have higher rates.
• Maintaining a low Debt-to-Income (DTI) ratio and a good credit score can improve your chances of securing both loans.
• Education loans offer tax benefits under Section 80E of the Income Tax Act for the interest paid, unlike personal loans which don’t offer such advantages.
• Education loans have longer repayment periods and grace periods, while personal loans come with shorter tenures but flexible usage.

In this blog, we’ll explore how you can take both loans simultaneously, the benefits, challenges, and tips to do it right.

What is an Education Loan?

An education loan is specifically designed to cover the costs of education, such as tuition fees, books, living expenses, and even travel if you’re studying abroad. Think of it as borrowing money now to build a brighter future. It's like a helping hand that lets students pay for their studies when they don’t have all the money upfront.

Education loans usually come with lower interest rates compared to other loans because they are aimed at students who are investing in their education. These loans often give you a grace period, meaning you don’t have to start paying them back until after you’ve finished your studies and started earning.

Key Features of an Education Loan:

• It is exclusively for education-related expenses.
• Repayment typically starts after you complete your course, giving you time to find a job.
• Lower interest rates make it affordable for students.
• Some loans may require security like property or savings, while others don’t.
• In many countries, you can claim deductions on the interest paid for an education loan.

What is a Personal Loan?

A personal loan is like borrowing money from a bank or financial institution to meet any urgent or planned expenses, without being tied to a specific purpose. Unlike an education loan, which is strictly for studies, a personal loan can be used for almost anything—travel, medical emergencies, wedding expenses, or even to fill financial gaps while studying.

These loans are unsecured, meaning you don’t need to provide any collateral like property or savings. But because there’s no security involved, personal loans usually come with higher interest rates compared to education loans. The repayment period is also shorter, typically ranging from 1 to 5 years.

Key Features of a Personal Loan:

• Unlike education loans, there are no usage restrictions for personal loans. You can use it for any purpose.
• You don’t have to pledge property or assets.
• Personal loans are usually processed faster compared to other loans.
• Since no collateral is involved, the lender charges a higher interest to offset the risk.
• Generally needs to be repaid within a few years.

Comparison: Personal Loan vs. Education Loan

When it comes to borrowing money, it’s important to know the differences between personal loans and education loans. Both serve different purposes, have unique features, and come with their own benefits and challenges. 

Here's a simple comparison to help you understand:

Can You Take a Personal Loan and Education Loan Simultaneously?

Yes, you can take both a personal loan and an education loan at the same time, but it’s not as simple as just applying for two loans. It requires careful planning and financial discipline. 

Sometimes, an education loan may not cover all your expenses. While it is designed to fund your tuition fees, living costs, and academic materials, there might be additional costs like a family emergency, setting up your accommodation, or even extra travel expenses. This is where a personal loan comes in handy as a flexible option for such needs.

Here’s what you need to understand before going down this road.

Factors to Consider Before Applying for Both Loans

Taking both a personal loan and an education loan at the same time might seem like a great solution for managing your expenses. But before you proceed, there are a few important factors to think about. 

These will help you decide whether it’s a smart financial move and how to manage it effectively.

Debt-to-Income (DTI) Ratio

Your Debt-to-Income (DTI) ratio is the percentage of your monthly income that goes toward paying your debts. Lenders look at this ratio to decide if you can handle the responsibility of another loan.

• A high DTI ratio means you’re already spending a large portion of your income on debt repayments, which could make lenders think twice before approving your new loan.
• Ideally, your DTI ratio should be below 40%. For example, if you earn ₹50,000 per month, try to keep your monthly loan repayments under ₹20,000.

Calculate your DTI ratio before applying. If it’s too high, consider paying off part of your existing loan first or look for ways to increase your income.

Impact on Credit Score

Your credit score is like a report card for how well you manage money. It tells lenders if they can trust you to repay loans on time.

• Applying for multiple loans at once can lower your credit score temporarily. Also, missing even one payment on either loan can damage your score, making it harder to get loans in the future.

• How to protect it:

  • Pay your EMIs (monthly payments) on time.
  • Avoid applying for loans you don’t need, as too many loan applications can hurt your score.

Understanding Interest Rates and Repayment Tenures

Every loan comes with an interest rate and a repayment period (tenure). These two factors greatly affect how much you’ll ultimately pay back.

• Interest rates: Personal loans typically have higher interest rates than education loans. For example, an education loan might have a 9% interest rate, while a personal loan could be 12-15%.
• Repayment tenures: Education loans usually have longer tenures (up to 15 years), giving you more time to repay. Personal loans, on the other hand, have shorter tenures (1-5 years), which means higher monthly payments.

Compare interest rates and tenure options from different lenders. Use online loan calculators to understand your monthly repayment obligations.

Additional Fees and Charges

When taking two loans, you’re not just borrowing money—you’ll also encounter additional fees that can add to your costs.

• Processing fees: Most lenders charge a one-time fee for processing your loan application. This fee can be a percentage of the loan amount.
• Prepayment penalties: Some lenders charge a fee if you repay your loan early.
• Late payment fees: Missing a payment on either loan can result in hefty penalties.

By considering these factors carefully, you’ll not only make smarter borrowing decisions but also avoid unnecessary financial stress. Always remember: borrow only what you truly need and can afford to repay.

Benefits of Taking Both Loans Simultaneously

Taking a personal loan alongside an education loan can be a strategic move if you plan and budget carefully. It ensures that all your needs are met without compromising your education or financial stability. The key is to borrow only what you need and to always stay on top of your repayment plans.

Here are some key advantages that make this combination a smart choice in specific situations:

Covers Gaps in Education Loan Funding

Education loans are designed to handle your tuition fees and basic living expenses. But what if there are extra costs like a laptop, visa fees, or even emergency travel? This is where a personal loan steps in.

Imagine your education loan covers ₹30 lakhs for tuition and living, but you still need ₹2 lakhs for a laptop and travel. A personal loan can fill this gap without derailing your plans.

Quick Access to Funds

Personal loans are typically disbursed faster than education loans. If you’re in a time crunch—like needing money for your visa appointment or an unexpected expense—a personal loan can provide immediate relief.

Personal loans usually have minimal paperwork and quicker approval times, ensuring you get the money when you need it most.

Flexibility in Usage

Education loans come with restrictions; you can only use them for approved expenses like tuition, accommodation, or books. Personal loans, on the other hand, don’t have such limits.

Whether you want to cover non-educational costs, like family emergencies or personal purchases, a personal loan gives you the freedom to use the funds as you see fit.

Easier Financial Management

By using two different loans for different purposes, you can keep your finances more organized. Education loans can handle long-term academic needs, while personal loans can address short-term expenses.

You might use your education loan for your tuition fees and accommodation, while your personal loan covers travel expenses and settling-in costs when you move abroad.

Builds Financial Credibility

If you manage both loans responsibly by making timely repayments, it can boost your credit score over time. This improved financial credibility can help you secure better financial opportunities in the future.

A strong credit score makes it easier to get loans or credit cards later in life, often with better terms and lower interest rates.

6. Flexibility in Repayment Options

With two loans, you have the option to choose repayment strategies that suit your income and timeline. You can focus on repaying the smaller, short-term personal loan first, while deferring the education loan repayment until after graduation.

Start repaying your personal loan immediately with part-time job income, while taking advantage of the education loan’s grace period.

Challenges of Managing Education & Personal Loan Together

While taking a personal loan and an education loan together has its benefits, it’s not without its challenges. Handling two loans at the same time requires careful planning and discipline. 

Here are some common challenges you might face:

• Higher Monthly Repayments: With two loans, you’ll have to juggle two sets of monthly payments, which can add up quickly. This might leave less room in your budget for other necessities.
• Increased Financial Pressure: Paying off two loans at once can feel overwhelming, especially if you don’t have a stable income yet. It’s easy to feel stretched thin trying to meet all your financial commitments.
• Risk of Default: If you fail to make timely payments on either loan, it can hurt your credit score and lead to penalties. This could also impact your chances of borrowing in the future.
• Higher Debt-to-Income Ratio: Managing two loans means a larger chunk of your income goes toward debt repayment. This could make it harder to qualify for other financial help, like credit cards or emergency loans.
• Interest Accumulation: With two loans, you’re also paying interest on two amounts. Over time, this can significantly increase the total cost of borrowing, especially if one of the loans has a high interest rate.
• Complex Budget Management: Balancing two repayment schedules, interest rates, and deadlines requires strong financial management. Without a proper plan, it’s easy to miss payments or fall short on funds.

Tips for Managing Both Loans Simultaneously

With these tips below, you can maintain control over your finances while focusing on your education and personal goals:

• Create a Detailed Budget: List all your monthly expenses, including loan repayments, and compare them to your income. This will help you see where your money is going and where you can cut back if needed.
• Set Up Automatic Payments: Missing a payment can lead to penalties and hurt your credit score. Automate your loan repayments so they’re deducted directly from your account each month without fail.
• Focus on High-Interest Loans First: If one of your loans has a higher interest rate, try to pay it off faster. This will save you money in the long run and reduce your financial burden sooner.
• Communicate With Your Lender: If you’re struggling to manage both loans, talk to your lenders. They might offer options like restructuring your loan, extending the tenure, or reducing your monthly payments temporarily.
• Avoid Additional Debt: While managing two loans, it’s best to avoid taking on new debt like credit cards or personal loans. Adding more repayments can complicate things and stretch your finances further.
• Keep an Emergency Fund: Set aside a small portion of your income each month to build an emergency fund. This will help cover unexpected expenses without disrupting your loan payments.
• Monitor Your Progress Regularly: Check your finances every month to ensure you’re staying on track with repayments. Adjust your budget or repayment strategy if needed to avoid falling behind.

Wrapping It All Up

Both, personal and educational loans serve different purposes: while an education loan invests in your future through academics, a personal loan can cover immediate financial gaps, giving you the flexibility to focus on your goals.

The key to successfully handling both loans lies in being proactive. By maintaining a clear budget, understanding your repayment terms, and building a strong financial plan, you can balance these responsibilities without unnecessary stress. Remember, managing two loans is not just about paying off debt—it’s about staying disciplined and preparing for the future.

If you’re unsure about how to approach this, Yocket Finance is here to help. Our experts can guide you through loan options, compare lenders, and provide personalized assistance to ensure you make informed decisions. Whether it’s selecting the right loan or navigating the repayment process, Yocket Finance simplifies the journey, so you can focus on achieving your dreams.