- Which are the things to consider while applying for an education loan?
- Read this post below and know the do’s and don’t of education loans
To have a successful career, you need to pursue the right education. However, the cost of higher studies is increasing rapidly and only an education loan remains the option for students whose families are not financially strong to pay for the same. Many banks and non-banking finance companies (NBFCs) offer education loans to students and help them pursue their studies without any problem. Since it’s a loan and it needs to be paid back, you will do well to know the do’s and don’ts of education loans before applying. This will help you get an optimized loan amount at a relatively lower rate. So, without any delay, let’s check what you should do and avoid as far as an education loan goes.
Let’s Check Out the Do’s First
The Do’s will focus on getting the loan at lower rates, the collateral that’s required in education loans, and other information. Let’s check out all in detail.
Compare Interest Rates of Different Lenders
Before applying, do check the interest rates of different banks or NBFCs and know which is suitable for you. Look to grab lower rates so that the EMI comes down and you can pay it easily. Lower rates will also lead to savings in terms of interest payments.
|Bank or NBFC||Interest Rate (per annum)|
|State Bank of India (SBI)||6.90% - 9.30%|
|Axis Bank||13.70% - 15.20%|
|ICICI Bank||11.25% - 11.75%|
|HDFC Bank||9.25% - 13.68%|
|Kotak Mahindra Bank||12.33% - 16.00%|
|YES BANK||12.00% - 14.00%|
|Bank of Baroda||6.85% - 9.95%|
|Punjab National Bank (PNB)||6.90% - 9.55%|
|RBL Bank||14.15% - 16.15%|
Do Check the Collateral Requirement
As per Reserve Bank of India (RBI), if you borrow above INR 7.5 lakh, collateral is needed to be pledged for the loan security. The collateral is used when you are not able to pay the borrowed loan amount. Your lender will compensate the loan amount by selling the collateral you pledge with it. You can submit a property, non-agricultural land, Fixed Deposit, Insurance policy, bonds, etc, as collateral to procure an education loan. If you don’t have any collateral, try to find a lender that meets your educational needs without any collateral above INR 7.5 lakh. Check out the table below to know the banks that provide you education loans above INR 7.5 lakh without collateral.
|Bank||Loan Amount (INR)||Interest Rate (per annum)||Tenure|
|Axis Bank||Up to INR 40 lakh||13.70% - 15.20%||15 years|
|HDFC Bank||Up to INR 35 lakh||9.25% - 13.68%||15 years|
|ICICI Bank||Up to INR 40 lakh||11.25% - 11.75%||15 years|
Tell Your Parents to Check their Credit Score
Your parent or guardian is the ‘guarantor’ when you apply for an education loan. And your guarantor should have a good credit score to ensure the loan application is not denied. A credit score of 750+ can help you get an education loan at an attractive rate of interest from the bank or NBFC. And you can build your credit score when your course is completed and the repayment of the education loan starts after the moratorium period.
Make Interest Payments During the Moratorium Period if You Have Got the Money
To make your repayment of the borrowed loan easier, the lender provides a moratorium period to the students that range from 6 to 12 months. If the student completed the course and secured a job via placement right after the course is completed, the moratorium period is of 6 months. Otherwise, the lender provides you full 12 months to find a job to pay for the borrowed loan amount.
In the meantime, you can reduce your loan burden if you want to by paying the interest component of the EMI during the moratorium period.
Understand the Tax Benefits
Taking an education loan also gives you a tax benefit. Under Section 80E of the Income Tax Act (ITA), you can claim a deduction on the paid interest amount up to 8 years during the repayment period. So when you get a job, do send your employer the information of loan payments in the Investment Declaration Form. Your employer will check the details thoroughly before passing it to the income tax department. Once approved by the IT department, you will get tax deductions on the interest paid for 8 years.
What Should You Avoid When Taking an Education Loan?
After focusing on the do’s, let’s look at the things you should avoid to ensure a smooth education loan journey.
Don’t Take a High Loan Amount if You Have Savings
If you borrow more, it will cost you more. Try to borrow a loan amount that can keep the EMIs low and ensure timely payment once you complete your course. When you have reasonably good savings for your higher studies, borrowing more makes no sense and it will ruin your budget. Your aim should be to pay the borrowed loan amount if it is a high education loan or a low education loan. Because lenders consider your savings and prospects of future income approving your education loan. As you are unemployed at the time of loan application and the savings will pay a certain portion of the money required for your education. The remaining portion will be taken care of by an education loan.
Don’t Take an Education loan to Study in a Low Profile Educational Institute
To pursue your higher studies you must have applied to different universities to reserve your seat. And if the college you get is not among the best ones, there is no benefit to borrow a loan for it. Why? Because there will be no placement options available to you and the lender as well won’t risk the loan if your college is not on the list of top colleges.
Don’t Apply for an Education Loan if There are no Job prospects on a Course You are Willing to Study
You shouldn’t borrow an education loan if your course you want to study doesn’t come with any job prospects. It will be difficult for you to pay the loan because you may not get a job, and as a result, find it hard to afford the loan payment.
Don’t Borrow Other Loans If You are Paying an Education Loan
It is not the right decision to borrow a loan if you are already paying your education loan EMIs. You can borrow it later once the education loan is paid in full. Because if you borrow a loan with an existing EMI, you will put yourself under more debt burden. Try to save as much as possible after paying the education loan EMI and make other necessary expenses. Borrow only when it is needed the most and the savings made are not sufficient to meet your needs.
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