Should I take out a personal loan to pay off student debt?



A personal loan is a form of installment credit with quick funding to your bank account, which you can use for a variety of reasons. But you can’t always use a personal loan for educational expenses, and they typically come with higher interest rates than student loans — so it might be a better idea to refinance your student loans instead.

Here’s everything you need to know about using a personal loan to pay off student debt.

Using a personal loan to pay off student loans

Taking out a personal loan to pay off student loans can be appealing — with online lenders, you can submit an application online, get an approval decision instantly and receive funding quickly. (Keep in mind, when personal loans are used for education-related expenses, federal law requires a wait period of three business days between loan acceptance and funding.)

With Credible, you can easily compare personal loan rates from various lenders in minutes.

Also, many lenders won’t allow you to use personal loans to repay student debt. For example, LightStream, a Credible partner, explicitly states that loans can’t be used for education funding. Similarly, Prosper (another Credible partner) doesn’t provide loans for student expenses because of student loan regulations that conflict with its platform. If you opt for a personal loan, be sure to verify that the lender you choose will allow you to use the money to repay student loans.

You can use a personal loan for living expenses while you’re going to school, but it’s an expensive option. You’ll likely get a lower interest rate and higher loan amounts by refinancing your student loans, especially if you have a strong credit score.

The difference between personal loans and student loan refinancing
Here’s a closer look at the difference between personal loans and student loan refinancing.

Personal loans

The following information is based on data from 17 Credible partner lenders. Keep in mind that these details vary by lender and interest rates can change at any time.

  • Loan amounts — Up to $100,000
  • Loan terms — One to seven years
  • Potential fees — Origination, prepayment, late, dishonored payment
  • Interest rates (fixed) — 2.49% to 35.99%

Student loan refinancing

The following information is based on data from 13 Credible partner lenders. Keep in mind that these details vary by lender and interest rates can change at any time.

  • Loan amounts — Up to $750,000 or the full balance of your education loans
  • Loan terms — Five to 20 years
  • Potential fees — Varies by lender
  • Interest rates (fixed) — 2.15% to 4.54%.

    Advantages of using a personal loan to repay student loans

    While getting a personal loan to pay off student loans isn’t ideal, this strategy comes with several benefits.

    • Release a cosigner — Once you pay off your outstanding student loan balance with a personal loan, the student loan is closed, and any cosigners on the loan are no longer attached to the account.
    • Qualify even if you didn’t graduate — Lenders who offer student loan refinancing often require applicants to graduate college to qualify. With a personal loan, completing your degree isn’t a requirement.
    • Receive loan funding quickly — Unlike student loan refinancing, where the underwriting process can take a few days to several weeks, personal loan lenders disburse funds quickly. Funding times vary by lender, but your loan may be approved and funded within three business days.
    • Discharge debt in bankruptcy — Discharging federal and private student loans in bankruptcy is next to impossible. That’s because debtors must prove that repaying the loan would cause “undue hardship.” As it stands, there’s no single test to measure undue hardship, so the waters are murky. Personal loans don’t have to meet this standard, making them easier to discharge should you ever have to file for bankruptcy. Keep in mind, bankruptcy should be a last resort, as it can negatively impact your credit for years…Read more>>

Source:-foxbusiness

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