When it comes to studying further, the challenge often tends to be the affording of fees. For many South African students, as recently highlighted by the Fees Must Fall campaign, affording to pay university fees for some are not realistic. This is where many resort to either personal or student loans.

But what is the difference between personal and student loans:

  1. The obvious difference between and a personal and student loan is that a personal loan can be used to pay for almost anything, from emergency expenses to major life events. Whereas a student loan, is specifically utilised for fees, books and other studying expenses. This is regulated through you needing to produce both proof of registration and often the institutions details upon application.
  2. Another important difference to note is in the repayments. In the case of a personal loan, you will be required to begin repaying the loan potentially from the very next month, whereas a student loan only requires that you start making repayments once you’re qualified and have started earning a salary.
  3. According to Liesl Lourens, senior quantitative analyst, at Nedbank Retail Banking further difference can be found in the interest rate offerings. The personal loan interest rate is risk based with the maximum being repo rate, which is at 7%,  + 21%, the student loan however is often calculated at prime lending rate, which is currently at 10.5 %, +2 %,” added Lourens.
  4. With a personal loan the funds are typically deposited into the borrower’s account once the loan has been approved. But when it comes to student loans the monies are sent straight to the educational institution.
  5. Unlike with a personal loan where a full affordability check is done on the applicant, with a student loan should the student not have an existing or sufficient credit record they are able to put down a sponsor who will then be credit checked. In this case however the sponsor will be responsible for repaying the loan, as per the contract agreement.

Students are often torn between whether to apply for a student or personal loan. While personal loans give you more freedom on what to spend the money on, student loans are cheaper in the long run. With the money going directly to the institution you’re less likely to be tempted to spend it on yourself or things that aren’t related to university fees. If you’re still not sure on what to do, seek the advice of a trusted financial advisor.