Loans are financial aids given for a certain purpose. These amounts have to be paid back to the financial institution from which they were borrowed. An interest amount is also levied on the principal loan amount and this too needs to be paid back. The principal amount is added to the interest amount and this sum is then divided into equal parts which are paid to the bank monthly. Student loans are loans of this type but there are a bit different from the general loans given out.
Let’s understand the difference between a student loan and a general loan.
- Applicable candidates – A general loan is given to almost anyone who meets the credit ratings of the financial institution. These loans are not specific in nature and can be borrowed from almost any financial institution government or private. The loan amount is handed over to the applicant directly. In the case of a student loan, the loan is given only to someone who is going to use it to study further. The money in most cases is given to a student only or to a parent of a student and is paid out to the educational institution directly as opposed to the loan applicant. The exact course of study and the institution where this course will be followed have to be defined right when the loan is being applied for.
- Rates of interest – In the general loan the interest rate is rather high. In most cases this interest rate will fluctuate often. However, in the case of student loans the rate of interest is very low. This is done so as to encourage more people to take these loans and seek higher education. If the student loan is being taken by a student personally, then the rate of interest is kept to a minimal. If the same loan is taken by a parent for the child, then the interest rate is usually higher. However, in all cases the rate of interest in the case of a student loan will remain lower than the rate of interest for a general loan.
- Grace period – When it comes to a general loan, the monthly installments or payments begin immediately. However, in the case of a student loan there is a grace period. In most cases the student does not have to begin paying the money back until about six months after taking graduating. The idea is to give the student a chance to seek a job after finishing the course and then begin to pay back the amount borrowed. However, this grace period is no extended to the parent in case the loan has been taken by the parent of the student instead of the student personally.
As is obvious a student loan is much more advantageous for a student or even a parent of a student as opposed to a general loan. So if you are seeking financial aid for further education, it will help to look into student loans and find one that works most appropriately for you.