When to Use Personal Loan to Fund Continuing College Education
Taking out a student loan to fund your education is the most widely used financing option among college students today.
If you need to fund your entire college education, a student loan probably makes the most sense because it offers the flexibility of a repayment grace period and may be eligible for loan forgiveness under certain circumstances.
However, what if you only need to fund a portion of your education? Or you've already graduated, have a job, but need to fund a certificate program or career training?
That's where a personal loan can come in to play.
Just like any other major purchase, it is important to weigh your options carefully when deciding how to finance a training program or part of your education.
The decision is ultimately yours alone but should be based on what makes sense financially.
Things to consider include:
- How much money you need
- How quickly you can pay your loan (or credit card) back
- How good your credit is
- If you have the option to wait and save, get a scholarship, or ask family to help you cover costs
What Are Personal Loans?
Personal loans offer people the freedom and flexibility to use funds however they please.
Get a personal loan, and you don’t have to use your home or vehicle as collateral.
Unlike credit cards which are considered revolving debt, personal loans are considered installment debt (more positive for your credit score, as long as you don’t miss payments).
They are commonly used for unexpected expenses such as home or car repairs, unexpected vet bills, or consolidating high interest credit cards.
Here's the catch:
In most cases, a student loan will have a lower interest rate than a personal loan.
If you are financing a trade school program or certification, such as a culinary arts certificate, it’s possible that the program may not be eligible for a federal or private student loan.
Or, student financing available may not cover the costs of living expenses while you complete your necessary semester of college, or training or certificate program.
Advantages of personal loans is they are easy to get, if you have decent credit and can show ability to pay.
Very little, if any documentation is needed, and you may be able to get access to funds in as little as 24 hours.
Disadvantages of personal loans are they can be difficult to get.
If your credit report reflects prior missed or late payments, you may not qualify.
And if you have lower credit score, and still do qualify, you’ll likely be paying very high interest rates.
Options for Financing Education / Career Training
Some types of career training you may finance with a private student loan or personal loan include:
- Flight training programs (commercial pilot rating, flight instructor
- FAA flight dispatcher certification
- Aviation mechanics license
- Real estate license programs
- Court reporting certificate
- Commercial & Industrial Maintenance
- Construction & Building
- Diesel Mechanics
- Electrician Trade
- Gardening/Landscape Design
- HVAC Training
- Marine & Watercraft
- Mechanical Drafting
- Paralegal certificate
- Motorcycle Repair
- Truck Driving
Personal Loans vs. Student Loans: What’s the Difference?
Personal loans and private student loans are both similar types of installment loans.
The main difference is you can use a personal loan for anything, and a student loan must be used for your education.
You should also note:
Student loans tend to offer longer terms, which may be better for people who need more time for repayment.
Additionally, some student loans have special hardship programs that are available if the borrower has temporary difficulty in making regular monthly payments.
Why It Might Not Make Sense to Take Out A Student Loan
Before you start filling out applications and punching in annual income and social security numbers, you should first determine why you want to get the education.
Take a moment to consider:
Do you need it to advance at your current job or to get a better job?
If the answer is yes, the next question is, does it make sense to take out a loan, vs taking time to save up.
Depending on the type of training you are seeking, it’s possible you may be eligible for a scholarship or even free financial aid.
If you have a better option than taking out a student loan or a personal loan, you should consider that.
Here are some scenarios where it might not make sense to take out a student loan:
If you have savings
If you are able to pay for a loan without taking out a student loan, use your savings.
If your family is willing to help
If you have a family member in a financial position or willing to give you a no interest loan, this is a better option and will not reflect on your credit.
If you are going to be shopping for a home
If you’ll be applying for a mortgage while you’re repaying your loan, your monthly debt will be evaluated as part of your mortgage application review.
If you’re unsure, talk to a loan officer about how the new loan will impact your debt-to-income ratio.
If you are approved a lower loan amount than the school-certified amount
You may be approved for a loan, but not for the whole amount.
Be sure you have a plan to cover expenses before signing up for a trade school or certificate time, particularly if you will not be working, or will be working less.
Your program isn’t eligible
It’s possible that the program or training you’re looking to get is unique and does not qualify for traditional educational financing.
In which case, you may not have an option for a student loan.
When It Does Make Sense to Get a Student Loan
If your trade school or certificate program qualifies for a student loan and you qualify for a good rate, and you’ve determined that the educational program is a smart educational move, it makes sense to get a student loan.
Personal Loans vs. Credit Cards
Advantages of a credit card include convenience and rewards, including cash back, frequent flier miles or hotel points.
Promotional offers like 0% APR to use your card or convenience checks can make using a credit card an attractive option.
Disadvantages include potentially high interest rates.
If you miss a single payment, you may be forced to pay a “penalty APR” which may be as high as 30%.
Personal loans are pretty simple, giving you a fixed term, and a fixed rate (unlike credit cards, which can increase your interest rate on future purchases at any time), and a fixed payment.
With a personal loan, you will have the same APR for the life of the loan but check carefully regarding any prepayment penalties.
Lenders sometimes charge prepayment penalties if borrowers choose to pay off the loan before the term ends.
Whichever method of financing you use for your education, make sure you read the fine print carefully and have an understanding of how much you’ll really be paying.
Using a credit card convenience check
One option, if your education is on the lower end of the cost rage, such as only $1,000, or $2,000, you might use a promotional credit card convenience check with a 0% APR.
If you keep a low or zero balance on your credit card, you’ll likely see these “convenience checks” in the mail from time to time.
But, be cautious:
Read the terms very closely, and only use if you believe you’ll be able to pay off the amount during the 0% APR promotional period (12-15 months is common).
Whether you take out a private student loan, personal loan, or pay for the program with your credit card, consider your ability to pay now, and throughout the life of the loan (or period of time until your credit card or loan is paid off.
Even if your current credit situation is less than ideal and you are forced to pay a high interest rate, remember that you are working to build better credit.
Make your payments on time, and keep your credit utilization low, and your score will improve.