- Want to borrow an education loan but are not aware of its nitty-gritty?
- Read this post to know the same
Pursuing higher studies is costly and most parents prefer an education loan to fulfill the dreams of their children. The loan is useful when you can’t afford a higher study due to the lack of funds or any other reason. And education loans can be paid later by jobs that you’ll get after completing the course. Those who are going to get an education loan must know about it all so that they don’t face any difficulty. There can be many aspects regarding an education loan you may not know. But staying ignorant doesn’t help! So, if you are seeking an education loan, do consider the points mentioned below.
You get a repayment holiday of 6 to 12 months after you complete your educational course and this could be the period when you need to find a job. The moratorium period is dependent on your job placement too. If you get a job early then the moratorium will be reduced to 6 months. Otherwise, you have 12 months of moratorium period to find a job and start paying the loan amount.
During the moratorium period, the lender will charge a simple interest over your borrowed amount that could be added later in your repayment schedule. If possible, you can pay the interest during the moratorium as well which will benefit you with a concession of 0.50%-1% in the interest rate, based on the lender you choose.
The Margin on Loan Amounts
You should be aware of the margin the bank or an NBFC will charge on your loan amount; it would be 5%-15% of the borrowed amount. It means the 5%-15% of your loan has to be managed by the applicant only and the lender won’t finance the margin money. You can manage the margin amount using the scholarship or assistantship you’ll get from the school or college.
And, if you have any savings left, you should use them to pay the margin amount of your education loan. If you borrow funds for study in India, your margin would be upto 5%. Whereas for overseas studies, the margin is 15%.
Borrow Funds for School Fees as Well!
Parents can borrow an education loan to finance their children’s school expenses too. The loan limit may not be high but it can cover expenses like building funds, tuition fees, project works, etc. And its payment may provide you tax benefits the same as the education loan for higher studies provided to you. Its drawback is that you won’t get a repayment holiday on this type of education loan and the interest rate is charged on your loan based on the reducing balance.
Collateral on Education Loans
You can offer a collateral to the lender if you want to borrow a high loan amount. The lender won’t approve a loan above INR 7,50,000 without collateral. So, you can ask your parents to provide assets like Fixed Deposit, Insurance Policy, Land or House, and get a loan amount against the same. The value of the collateral is evaluated by the lender to sanction your loan amount. In case if the loan isn’t paid, the lender can compensate for the lack of debt recovery by seizing the collateral and selling the same.
Education Loan for Part-Time Courses
Education loans are not limited to full-time courses only. Bank and non-banking financial institutions provide loans to the student for part-time courses as well. You just need to submit the fee schedule and admission letter from the institution in which you secured admission. As part-time courses can be done with an amount of upto INR 1-4 lakh, you could avoid being in a situation where you need to pay margin money and submit collateral.