Are Personal Loans A Better Option Than Student Loans?

Don't get personal loans if you can help it

Flickr user John Lodder

No, personal loans are most definitely not a better option than student loans.

Personal loans should be your very last resource for borrowing money for college. If possible, they should be avoided altogether. Here are three reasons why:

Higher Interest Rates

Interest rates on personal loans vary depending on your credit score. As you would not have had a chance to build your credit as a student, you can expect the interest rate to be on the higher side.

Federal student loans on the other hand have some of the lowest interest rates. Additionally, your creditworthiness does not affect either your eligibility to take a loan or the rate of interest on the loan.

When you are looking to borrow money to cover your college education, you should always apply for federal student loans first. If the federal student loans allotted to you are not sufficient, your second option should be private student loans. These are more expensive than federal student loans but still much cheaper than personal loans. As we said earlier, personal loans should be your last option and only if you have exhausted all other resources.

Quick Tip: Before you apply for personal loans, make a list of all possible resources that you can earn money for college. Some things to include in the list are scholarships (your best source of free money), grants (another source of free money if you can show evidence of financial need), parents’ college savings, work study.

Shorter Loan Term

Unlike federal student loans that have a grace period followed by a 10-year repayment plan, (which you can change depending on your financial situation), with personal loans you have to start paying it back almost immediately. There is no grace period, which means you will have to find a way to start paying back the loan while you are in school.

Also, loan terms range anywhere from 6 months to 7 years. The monthly payments are more likely to be less affordable, putting you at a higher risk for default. Don’t underestimate the consequences of defaulting on your student loans. When you default on your student loans, your hard-won credit score will get damaged. That will make it more difficult for you to get borrow money for any other purposes. Even if you do manage to get a loan, you can expect to pay premium interest rates.

Ascent company logo.

A loan designed with you in mind

Variable cosigned rates from 6.16% - 15.59% APR with auto-debit


Little Or No Help With Repayment

Interest rates and repayment options vary from one lender to another. When you take a personal loan, you will have to abide by the terms and conditions set out by that lender. If you cannot make the monthly payment agreed on, very few if any lenders will offer you any alternatives. With federal student loans, you have several repayment options to choose from to ease your financial situation. If you qualify, you may even be able to get your loans forgiven.

Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side!


Lender Rates (APR) Eligibility
Citizens logo.
6.37%-14.27%* Variable
4.99%-13.29%* Fixed
Undergraduate and Graduate
Sallie Mae logo.
6.37% - 16.70% Variable
4.50% - 15.49% Fixed
Undergraduate and Graduate
Credibe company logo.
5.39% - 16.99% Variable
4.43% - 16.99% Fixed
Undergraduate and Graduate
Lendkey company logo.
5.84% - 11.11% Variable
4.39% - 11.11% Fixed
Undergraduate and Graduate
Ascent company logo.
6.16% - 15.59% Variable
4.53% - 15.36% Fixed
Undergraduate and Graduate
6.10% - 10.64% Variable
3.95% - 8.01% Fixed
Undergraduate and Graduate
Earnest company logo.
5.62% - 16.20% Variable
4.42% - 15.90% Fixed
Undergraduate and Graduate
4.98% - 12.79% Variable
4.48% - 12.29% Fixed
Undergraduate and Graduate
College Raptor is not a loan lender and does not assume responsibility for suggesting a loan to a user who may not be eligible for it. Rates, terms, conditions, eligibility, approval, and other considerations are the decisions of the lenders and may vary depending on which lender or marketplace the user selects. We urge users to carefully consider and review all loan options and terms before committing to taking out a loan.