For a student who belongs to an average middle class Indian family a higher education loan can serve as a launch pad to a successful future. With more and more Indian harbouring dreams to become global citizens, the trend of availing education loans has been on the rise over the past decade or so. That having said, sending a child to study abroad and taking care of boarding lodging and other expenses along with the tuition fee can still be a tall task. Thus, before making an application for education loan the aspiring candidate must research about the various education loans available before choosing the right one. Here is a comprehensive guide on how to compare education loans before making an application for education loan.
Interest rate applicable
Like any other loan product, the first and foremost thing that needs to be taken into consideration while comparing education loans is the interest rate. There is a plethora of banks offering educations loans to aspiring students. Currently education loan interest rates are in the range of 9.70-13.45%. While comparing interest rates on loans, it is important to understand how the interest rate is being calculated on the loan amount, meaning whether it is being charged based on daily/quarterly reducing balance or a flat rate of interest throughout the tenure of your loan. A diminishing or reducing balance is better as it is more transparent and gives you a better idea of the effective rate of interest.
Cost heads covered
Each lending institution has its own definition of education loan requirements. Before making an application for education loan it is therefore important to find out what are the expenses covered and dig into further details about the caps on expenses. For instance, while all banks cover the airfare to travel to the destination country, some banks restrict it to 10% of the total expenses or may only give the basic economy fare. Similarly, the cost of books, stationery and other course material may be capped at a certain % of the total education loan. As an applicant, you need to find out the best possible deal on a loan product that will cover a greater part of your expenses.
The moratorium period
The biggest advantage of taking an education loan is that you do not need to start repayment from the first day of having finished the course you have applied for. Banks give a waiver or a moratorium that can range from 6 months to a year before the repayment tenure. Most students who complete a professional course take some time to find a job that is best suited to their interests and justifies the education that they have received. Therefore, the longer waiver or the moratorium period, the better it is for the student to find a good job. It is a prudent idea to check out this moratorium period before deciding the lending institution to which you want to make an application.
Processing fee and other associated costs
While some banks charge a processing fee of 0.5-1% of the loan amount as a processing fee, others do not. Similarly, there are other associated costs such as documentation fee, administrative fee and the likes. You most carefully assess these costs and zero in on the bank or lending institution which has kept these costs at a minimum.
The collateral and guarantor
In the past few years, banks have had to battle with a lot of delinquencies especially in the education loan products. Given the bad experiences in the past, most banks have now made a mandatory collateral clause on education loans that exceed ₹ 4 lakhs in value. Often, a guarantor, must step in or even become a co-applicant on the loan. In such cases the credit record of the guarantor is taken into consideration, and those with a high CIBIL score have a better chance of getting an approval on the loan. Before making a loan application it is therefore essential to compare the collateral requirements of each lender before making a final choice.
The down payment
Depending on the course, country and amount of loan you are applying for, the down payment varies between 5-20% of the loan amount. This is a crucial factor that must be considered upfront and thus needs to be compared prior to making a choice of the lender.
Like any other loan product, it is imperative to carry out a thorough comparison about the various loan products available before making the final choice on an education loan. Making the right choice will not only help you get the best education loan interest rate and fund your higher education ambitions but will also give you the right start to build a good credit record. In today’s context, it is important for one and all to have a good credit record and a higher education loan provides the right start.
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