20 Dec 2018
#FinancialBytes: 5 things to notice before finalizing your education loan
While these loans can come in very handy as students can repay after completing their course, it is essential to consider a few important things before taking an education loan.
Here are 5 things to notice before finalizing education loans.
Know about interest rate type offered by the banks
Before taking an education loan, one must do proper research and know how much interest will be charged by the bank on the loan.
They should also find out if the interest amount will remain constant or change based on market trends - fixed or floating rate.
The interest may vary depending on the amount of loan, repayment tenure, educational institution among other factors.
How much is the down payment for the loan?
One must also find out how much is the down payment (margin) for the education loan they would be taking, before finalizing it.
In India, banks currently provide 100% of the loan if the amount is less than Rs. 4 lakh.
However, if the amount exceeds Rs. 4 lakh, candidates have to pay 5% of it in advance (15% down payment for studies overseas).
Pay attention to additional charges levied by the bank
Banks might levy various additional charges on the education loans and candidates should pay attention to how much they are required to pay.
While most lenders don't charge processing fees, some banks might charge 1% processing fee. Applicants might also have to pay administration fees and documentation costs.
Also, some banks charge up to 4% of pre-closure fees or prepayment penalty.
The repayment tenure and moratorium period offered by bank
Students should repay education loans after the completion of their course. Applicants must know how long the repayment tenure is; it generally ranges upto 10 years.
Also, they should consider the moratorium (holiday) period after which repayment starts; it is usually between 6-18 months after course completion. Repayment starts after the moratorium period expires or when the borrower secures a job, whichever is earlier.
#4: Check if collateral is required or not
Before choosing an educational loan offered by a particular bank, one should also check if security collateral or guarantor is required for the same. Generally, banks don't require collateral or guarantors if the amount of the loan taken is less than Rs. 4 lakh.