Should You Pay For Your Child’s Education With A Credit Card Or Personal Loan?

Should You Pay For Your Child’s Education With A Credit Card Or Personal Loan?

While education in the Philippines has become completely inclusive with the implementation of the free tuition fee law, private school students (and their parents) aren’t necessarily relieved from the burden of paying for their child’s education. The free tuition fee law only covers State Universities and Colleges; the financial assistance extended by the government to private schools are limited and can come with quite stringent qualification.

For parents of students who go to private schools, the upcoming school year will remain to be as financially challenging as it was in the previous year.  The cost of college has soared high in recent years, especially in some of the country’s renowned schools like Ateneo, La Salle, and UST to name a few. On the average, a semester in Ateneo cost about ₱72,305.85, ₱50,075.00 (average) in UST, and ₱65,740 for a 20 unit semester in La Salle (for tuition fee alone).

While all of these schools offer cash installment, will a credit card installment or personal loan make more financial sense in paying off your child’s tuition?

Paying with a credit card

Paying for tuition with a credit card can be a good way to offset some expenses with the help of your credit card’s cash-back feature or airline miles. However, before getting blindsided by this benefit, it’s still necessary to do a check and balance to avoid credit card debts that you might not be able to settle easily at the end of the day.

If you plan to finance your or your child’s college education with this method, it’s worth doing a check and balance to help you make an informed decision.

Pros

  1. Just about all credit cards offer sign-up bonuses which can be claimed after hitting the minimum spend requirement by the bank. Sign-up bonuses are commonly prestigious the spending requirement is usually easy to hit. Sign-up bonuses are usually luxurious, from expensive shoes to free airfare.
  1. Most credit cards allow conversion of certain purchases into installment plans up to 36 months at low or even zero interest rates. However, this type of payment plan must be arranged with your bank after you’ve made the tuition fee payment or purchase.
    HSBC Red Mastercard

    HSBC Red Mastercard

    A shoper’s must have card

    Earn Rate of 1 Bonus Point for every ₱20.00 spend.
  1. It will help you meet your annual spending threshold easier and unlock additional benefits and rewards that you’d be available otherwise.
    The potential to earn big rewards with whichever incentive program your card offers which could normally take months to earn. For example, if you have a credit card that offers 1.5% cash back on all purchases and a semester’s tuition costs ₱50,000, you could earn ₱750 back in one fell swoop.

Cons

It’s a general knowledge that credit cards are pretty much like a double-edged financial tool which can work towards your advantage if managed properly and lead you into a financial turmoil otherwise. Having said that, if you fail to settle your credit card dues promptly, your finances will end up with the following:

  1. Earning reward points or cashback fast is appealing, but paying with a credit card may also come with hidden cost charged by schools that will just offset the amount of your reward or cashback. A ₱1,000 worth of cashback or reward may be useless if it only gets offset by fees like a convenience fee of 2 to 4 percent of the overall balance. It’s important to note, though, that not all schools charge a convenience fee, check with your school cashier/registrar first before making the payment.
  1.  Big cost, big payoff.  This same benefit works for other types of rewards cards, too. Travel credit cards can be particularly lucrative. If your card (or your parents’) earns airline or hotel miles, your point value can easily top 1 cent per point.

When is the best time to pay with your credit card?

Despite being a good opportunity to grind for those rewards and airmiles, the fees involved can be painstaking if the entire amount doesn’t get converted into an installment plan by your bank. Unless you’re able to make a straight payment to settle the entire balance in the succeeding month, you’ll be stacking interests every month until you’ve paid it off completely.

Paying for college tuition with a credit card is only beneficial under a very specific set of circumstances. If your credit card offers an installment plan to settle your balance without incurring excessive fees and charges, it can be a major deciding factor. However, even with such privilege, you  will still end up paying for more than you should if you fail to pay promptly. Only pay with your credit card if you can tick off these two items:

a.) Your credit card can convert your straight payment into an installment plan with flexible payment terms and interest rates.

b.) You are confident that you can settle your credit card bills promptly.

Otherwise, with the risks and fees that go along with credit card payment for university costs, you’re probably better off seeking out other payment options.  There are different types of credit cards that can cater to all sorts of needs. Choosing one appropriate to your spending will help you shave off some unwanted fees. Find the most suitable for you and  compare credit cards.

Paying with a personal loan

Unlike credit cards, personal loans offer lighter interest rates and more transparent fees and charges. It’s also more accessible to parents in the Philippines compared to credit cards which come with strict requirements that not everyone could easily comply with.

Despite its obvious advantage over credit card payment, your capability to pay it will still play a big role in keeping the interest rates and fees in check.

Pros

  1. You can easily arrange lighter payment terms. You can easily arrange to pay for a ₱50,000 personal loan for 12 to 24 months prior to the approval of the loan.
  2. Your monthly repayment is also fixed and is laid out to you prior getting the loan. Unlike credit cards, which will charge interest upon interest, the monthly amount you need to pay for a loan stays constant throughout the end of the payment term.
  3. Flexibility to spend on other essentials like books without having to make a separate payment plan.

Cons

  1. Certain personal loans penalize borrowers for early repayment, have high-interest rates and poor terms.
  1. Most personal loans do not allow part payment which means you pay the entire loan period, often paying a significant amount of interest.
  1. Due to the fact that these loans are considered high risk, most lenders require stringent credit investigation and may require a guarantor.
  1. Personal loans that are less strict in the documents may impose higher interest rates and short payment terms.

When should you pay with a personal loan?

Realistically, personal loans are widely used by students and parents in the Philippines to settle their school’s tuition because it’s a more accessible product to the masses. However, this is not to say that everyone looking to finance their education must go down the same road.

Unsecured personal loans for one can impose extreme high-interest rates (up to 30% to 50%  annual interest rates) and short payment terms (6 months or less), making it a poor choice to pay for your child’s education. Only push for this option only if you’re capable of keeping up with the monthly repayment.

On the other hand, secured personal loans offer flexible payment terms and reasonable interest rates. They may impose a more strict requirement, but in return, interest rates are lower and payment terms can be as long as 36 months.While this is indeed one of the best personal loan options that you can get, you must also keep in mind that they might also impose late fees and other charges if you don’t pay promptly.

When you’re considering personal loans, it all comes down to how much you need to borrow and how much interest rates you’re looking at. By running the numbers on how the long-term costs add up, you’ll be able to decide which type of personal loan is best for you.

Take note

While payment terms for personal loans can be as flexible as 12 to 36 months, avoid overlapping your loan repayment with the next school year or semester. Otherwise, you’ll end up stacking more payment that your finances could handle.

Citi Personal Loan

Citi Personal Loan

Fast approval

Have a standby credit line of up to ₱2,000,000

Personal loan vs credit card

Despite their difference, a personal loan and a credit card payments are one and the same – they’re both debts. While they may differ greatly in terms of interest rates and payment term, the bottom line is, you will have to pay more than the funds that you will be using.

Here’s how much you will be paying if you use any of these two in paying for your child’s tuition.

Credit card installment
(HSBC)
Personal loan
(Citibank)
Loan amount₱60,000 ₱60,000
Loan tenure/term 12 months12 months
Interest rate 8.9%15.16%
Monthly repayment₱5,445₱5,758
A finance charge of 2%-4% (for some schools) ₱800 (2%)N/A
Total amount of repayment₱65,340 ₱69,096

Don’t be overly dependent on personal loans and credit cards to get you out of a financial bind every time. Consider these two as your last resort in paying for whatever financial obligation that you need to settle even for your child’s education. Keep in mind that with every loan you take out, you are actually losing money in interests, which is never a good thing even if it’s used for a good cause.

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