Important things to consider before finalizing education loan

Business

20 Dec 2018

#FinancialBytes: 5 things to notice before finalizing your education loan

Education loans have become a necessity today; as the cost of education keeps skyrocketing, many students need to rely on loans for quality education.

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.

#1

Know about interest rate type offered by the banks

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.

#2

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).

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#3

Pay attention to additional charges levied by the bank

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.

#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.

#5

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.

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Most asked questions

Is education loan interest rate eligible for tax benefits?

What will happen if the borrower can't repay education loan?

What are the parameters to be compared for taking education loan?

How to check whether education loan is available for a course?

More questions

Is education loan interest rate eligible for tax benefits?

Asked 2018-12-20 21:09:07 by Aaryan Pawar

Answered by NewsBytes

Yes, one can avail income tax benefits on the interest of the education loan taken for self, spouse, children, or someone for whom they are a legal guardian. The deduction can be claimed for up to 8 years. The principal amount is not eligible for tax benefits.

What will happen if the borrower can't repay education loan?

Asked 2018-12-20 21:09:07 by Muhammad Pawar

Answered by NewsBytes

If a borrower defaults on repayment and is not able to repay education loan, it will hamper their future credit opportunities. It would also create problems for the guarantors, and the collateral offered will be at stake. To avoid trouble, borrowers should have a backup plan for repayment even if they don't get a job or fail to repay after the moratorium period.

What are the parameters to be compared for taking education loan?

Asked 2018-12-20 21:09:07 by Ankita Patil

Answered by NewsBytes

One should conduct detailed research on education loans offered by various banks before choosing one. They must compare the interest rates, repayment tenures, processing fees, the scope of coverage (tuition fee, accommodation, books, etc.), and interest and repayment terms among other parameters.

How to check whether education loan is available for a course?

Asked 2018-12-20 21:09:07 by Aaradhya Patil

Answered by NewsBytes

Candidates should check whether loan facility is available for the course they are interested in beforehand. Before deciding on a course or applying for admission, they can find out whether a loan is available by approaching the concerned college or the bank they want to take the loan from.

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