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6 factors to consider before taking an education loan

With the cost of education rising at a faster rate everyday, education loans have become the only potential way to finance higher education these days. As most of the students studying in top educational institutions expect to earn high salaries at the end of their studies, they are likely to be in a position to repay the education loans over a period of time.

Both public sector and private sector banks offer education loans to students who wish to pursue higher studies. These education loans are provided for both graduate and postgraduate courses including Engineering, Medical, Architecture, Management, Law, Agriculture, Veterinary, Dental, Computer Science etc. Some banks have their own list of courses and they grant loans only for those courses. However, let’s have a look at some of the crucial factors to consider before taking an education loan.

Eligibility for loan

Before applying for an education loan, you must know the eligibility criteria as different banks have their own set of terms and conditions. To apply for a loan, you need to be an Indian citizen and should have taken admission in a recognized college.

If you are not earning at the time of applying for a loan, your parents or siblings become the co-applicant of the loan. The loan amount offered varies from bank to bank, so it is better to have a quick check on the type of courses covered under the loan to avoid any future confusion.

If the income of the guardian is not sufficient, then banks often ask for collaterals for sanctioning a loan amount between INR 4 and INR 7 lakh. Any amount more than INR 7.5 lakh requires joint borrowers along with some tangible security collateral of equivalent value.

Interest rate and repayment period

After your admission to a certain university for a particular course is confirmed, it is better for you to evaluate all available loan options. It is a must to compare the rate of interest provided by different banks as well as the time of repayment allowed.

According to available updates, a loan of INR 4 Lakhs or less comes with an interest of 10%-15% payable within 3 years, while a higher amount is usually given at lower interest rates, but with a longer repayment period of 5-7 years.

Some banks generally ask for a guarantor in case of a default on the loan amount. For students, this person is usually their parents or a guardian.

Future EMI burden

Student at the beginning of their career don’t earn much, hence they should opt for longer loan tenure that goes up to 10-12 years. This helps in a big way for repayment burden on the student with relatively smaller EMIs.

Check existing loan amount

If any of your guardians or parents have already taken other loans, you should consult them before burdening them with more loans. And if the existing amount of loan is small, then there is no reason for you to worry. If the loan amount is huge, then it is better to avoid another big loan simultaneously. This is one of the reasons why you need to have good job opportunities after graduating so that you would be able to repay the education loan on time.

Read terms and conditions well

Terms and conditions for sanctioning loan vary from bank to bank. Many of the norms mentioned in the terms and condition section might not be conveyed to you at the time of loan disbursal, but you must check them all before going ahead with the loan. Read the clauses carefully and make sure you are aware of all associated charges such as the processing fees, charges involved in pre-payment or late payment of EMIs etc.

Special schemes

There are many banks in India, especially government-owned banks, that offer special schemes for girl students who opt for education loans. Even, some banks offer 1 per cent lower interest rate for girl students for their higher studies. In some cases, the government offers the subsidy on the interest levied over the loan amount to girl students during the tenure of their studies. Hence, it is wise to check with your bank about all special schemes.

Conclusion

Taking an education loan is a big step in building a good credit score as this is the first loan in a student’s life. If you repay the loan on time without any defaults, then the way will be more clear for you to apply for a home loan or car loan in future.

Manmath Nayak

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