Things to consider before opting for an Educational loan

Getting a good education is now becoming increasingly difficult. Over the past decade, the cost of education in India has risen exponentially, without any signs of slowing down. Between 2008 and 2014, the average annual private expenditure for general education rose by 175%. Estimates suggest that, at this rate, education costs are rising faster than inflation rates. There are a lot of things to consider before opting for an educational loan.

Most parents are concerned about funding their child’s education a lot. And there seems to be no end to this problem. An education loan has thus become a pivotal option for a majority of students. This is true irrespective of where you want to study. In fact, studying abroad can be significantly more expensive.

Educational loans can be paid through the job that they get after completing the course. However, if failed it can be a great burden.

This phase can be a stressful one for the student and their parents.

Most of the banks both in the public and private sector offer educational loans to students who are pursuing both bachelors and masters degree. The educational loan covers a lot of courses like engineering, medicine, agriculture, law, architecture etc.

All banks have their own list of courses for which they fund. Here are some of the things that you must consider before opting for an educational loan. First, let’s talk about them. And then move on to why StuCred is the easiest and quickest way to get a real-time student loan.

Check for the Eligibility

This is one of the things to consider before opting for an educational loan. Usually, a student who is an Indian citizen and pursuing higher studies is eligible for an educational loan. However, the terms and conditions may differ for each and every bank.

It’s better to check if the course you have chosen is eligible for a loan from that bank. The maximum limit for an educational loan in India is 7.5 lakhs.

Banks usually ask a guarantor for any loans above 4 lakh rupees. The guarantor can be parents or guardians. As per the bank’s terms if the guarantor’s income is not sufficient then you should submit any collateral.

Choosing the Right Bank

Choosing the right bank is one of the important things to consider before opting for an educational loan. Educational loans naturally come with a very high-interest rate ranging anywhere between 10% and 13 %.

There are a number of banks that offer educational loans, the one that you are going to opt must be chosen wisely. You should evaluate among them and find the bank that provides the best interest rate for your course.

You should also consider the bank that will provide the best moratorium period and the repayment period. Moratorium periods are the duration of the course, for which you don’t have to repay the loan but the interest will still get added to the loan.

A bank loan for a higher amount usually comes with a comparatively lesser interest rate and a longer tenure than a loan for a lesser amount.

Know About the EMI Plans

A longer tenure loan will have a lesser EMI which will be easy to pay at the beginning of your career. But that will cost you more. If the tenure is a shorter period your EMI will be higher but the total cost of the loan will be cheaper. Choose the best one according to your financial situation.

Don’t Take Education loan in Lump Sum

Banks charge interests for the loan amount disbursed even during the moratorium period. Since you need the loan only during the semesters avoid taking the loan in a lump sum. Instead, ask the banks to disburse it in instalments during the semesters which can also save money in interest.

Tax Benefits

Banks charge interests for the loan amount disbursed even during the moratorium period. Since you need the loan only during the semesters avoid taking the loan in a lump sum. Instead, ask the banks to disburse it in instalments during the semesters which can also save money in interest.

Tax benefits can be availed on your educational loan under Section 80E of the Income Tax Act. To avail it the loan must be from a nationalised bank or gazetted financial institution. The maximum tax deduction period is 8 years. So if you opt for a longer tenure, you will get tax deductions only for the first 8 years

Read the Terms & Conditions

Before you sign for a loan read all the terms and conditions carefully. There might be some wrong information or misconceptions during the time of loan disbursal those can be clarified by reading all the papers well. This can also make you aware of all the charges like processing charges and policies regarding pre-closure etc.

Special Schemes

There are many special schemes in most of the banks especially in nationalized banks for loans taken by women. There are banks which reduce the interest rates for women students or they give a subsidy to the interest that is applied during the course duration.

Repayment of the Loan

Once you have started earning you should be on a budget while you have a loan on your name. It can be a burden to have a loan after a while so you can save money to do partial payments and cut off unimportant things to pay more than the EMI. By doing so you can save a lot on the interests.

Availing a student loan and repaying it on time is a great way to build your credit score since it will be the first loan that you take. You could also build your credit score by using the StuCred app without much burden, unlike the educational loans which may haunt you after a while.

Defaults on Education Loans

The bank may understand it for a while if you couldn’t manage to get a job due to the economic crisis and give you some extensions for the repayment of your loan. But this is only during exceptional cases where banks may give some extensions. One should always try to pay their loans as quickly as possible and should never default on educational loans. Since it will affect yours as well as your co borrower’s credit score. If you default to pay the loan any collateral that you may have offered will also be at stake.

So do research well about the ability to repay the loan, tenure, loan amount and job opportunities before availing an educational loan.