Education Loan: Before taking loan for studies, keep these eight things in mind, it will be easy to repay the loan
Education Loan: Before applying for an education loan, you should keep some things in mind so that there is no problem later.
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Education Loan: Higher education is getting expensive day by day. Its expenses are becoming heavy for most people, so they take loans from banks and NBFCs for engineering-medical studies. However, after the completion of the course, there is a risk of not getting a better paying job and staying in debt for a few years. In such a situation, it is very important to take care of some things before taking loan for studies and compare the education loan offers of different financial institutions. Below are some such points that you should keep in mind before applying for an education loan.
loan amount
Apart from course fees, you will also have to spend on hostels, laptops and books etc. during studies, so the loan amount should be enough to cover the entire cost. Usually loans up to Rs 10 lakh are available for domestic courses and up to Rs 20 lakh for studies abroad, but large institutions like IIMs, IITs and ISBs can get more loans for courses. In such a situation, one must compare the education loans offered by different financial institutions for your course.
repayment period
Generally, financial institutions offer an additional moratorium period of one year in addition to the course period. No EMI is to be paid during this period. When you start paying EMI, you get a repayment period of 15 years. However, keep in mind that the calculation of interest starts from the day the loan is granted, which is added to the principal amount. Apart from this, the bank can extend the moratorium period by two more years, if they are not able to complete the course within the stipulated period or are planning to start their own startup.
Rate of interest
Generally, the interest rate of education loan starts from around 6.75 per cent per annum. The rate depends on the type of course, institution, past academic performance, credit score and security of the student/co-applicant. Simple interest rate is charged during the moratorium period and compound interest rate after this period. Some banks offer a discount of up to 1 per cent in rates if you are paying interest even during the moratorium period. In such a situation, the borrowers should pay simple interest during the moratorium period so that the total cost of the loan can be reduced.
margin money
Some part of the education loan has to be paid as margin money but it is not required for loans up to Rs 4 lakh. For education loans above Rs 4 lakh, margin money will be required at 5% for domestic courses and 15% for foreign courses. However, SBI waives off margin money for courses in top educational institutions of the country.
Tie-up between Colleges and Banks/NBFCs
Many educational institutions tie-up with banks and NBFCs to provide education loans to their students. In such a situation, before taking an education loan, check whether the university or institute you are going to take admission in has a tie-up with any bank or NBFC. With such a tie-up, you can get the loan quickly and the interest will also have to be paid less.
Estimation of future earnings to calculate EMI
Before applying for education loan, check the placement history of the university or institute you are going to take admission in. Check out how much the average salary will be available in campus placements there. This will help you calculate your monthly income and EMI accordingly. Apart from this, choosing the loan tenure will also help. Do not be aggressive in paying EMIs as if you default in paying EMIs due to unemployment or low salary, it will spoil your credit score. Education loan can be paid without prepayment penalty.
tax benefits
If you are taking an education loan for yourself, for your children, for your spouse or for a child as a guardian, then you can claim tax deduction under section 80C of the Income Tax Act. This deduction will be available on the interest of the loan and there is no upper limit. However, this deduction will be available only for eight years from the start of EMI. In such a situation, when you start paying the installment of this loan, then pay it in full within eight years so that you can take maximum tax benefits.
Collateral/Guarantor
Generally, for education loans up to Rs 4 lakh, lenders do not insist for collateral or third party guarantee. Some banks like HDFC Bank and Bank of Baroda do not ask for any such guarantee for loans up to Rs 7.5 lakh. In other banks, a third party guarantor is required for loans up to Rs 4-7.5 lakh, but if the lender is satisfied with the repayment capacity of the co-borrower, then this is also not required. For loans above Rs 7.5 lakh, security has to be given in the form of property, mutual funds, bank deposits, insurance policies, etc.