- What benefits does an education loan provide?
- Lower interest rates and income tax benefits are some of its benefits - Let’s read all that in detail here
Education is costlier for many students in India as it can cost upto INR 15-25 lakh or more based on the course you pursue. Most parents use their savings to fund education or liquidate assets such as fixed deposit, gold, or property. However, you have the loan option too at your disposal. You can borrow an education loan either from a bank or Non-Banking Financial Company based on how attractive their education loan offer is. In this post, you’ll know the benefits of an education loan that the borrower gets when they borrow a loan for their higher studies.
Lets Your Savings Undisturbed
Taking an education loan means your savings will be undisturbed. But you may need to use savings in an education loan if you borrow above INR 7.5 lakh. Because banks usually don’t provide an unsecured education loan above INR 7.5 lakh. But some lenders can meet your educational requirements without asking for collateral. Check them out.
|Bank||Loan Amount (In INR)||Interest Rate (In Per Annum)|
|Axis Bank||40 lakh||13.70% - 15.20%|
|ICICI Bank||40 lakh||11.25% - 11.75%|
|HDFC Bank||35 lakh (for overseas studies)||9.50% - 13.49%|
And, if the lender needs security for the loan amount, you can use any of the following assets.
- Fixed Deposit
- Insurance policy
- Non-agricultural land
The more the value of your asset the higher you could borrow. The lender can release the asset when the loan is paid in full and you get the No-objection Certificate (NOC) from it. Your asset can help you get a better rate of interest on your borrowed loan amount which makes it easy for the student to pay the loan in the future without any trouble.
Education loan not just covers your course fee, but it also covers expenses such as hostel expenses, exam fees, library charges, lab fees, project work, and purchase of a laptop if it is required to complete the course. You can buy books and manage the travel expenses too using the education loan. This reduces the financial burden and helps you achieve the goal quickly. The lender will approve the list of fees and other expenses if it is mentioned in the fee structure of the course and signed by the educational institution, otherwise, you won’t be able to use the loan for additional needs. The lender approves the loan if the student has secured admission to the college or an educational institution. Based on that only, the lender will look at the profile of the student and sanction the loan as the primary borrower. And the repayment capacity will depend on the future job prospects of the student.
That is why it is advised to students that they must try to secure admission to the top colleges via entrance or merit-based selection, so the loan will be approved without any hassle. One of the benefits of the education loan is its loan coverage as it will help the student to meet all financial needs during the course period.
Under Section 80E of the Income Tax Act. (ITA), 1986, the entire interest amount which you pay on an education loan qualifies the borrower for a tax deduction. This income tax deduction can be claimed for up to eight years. Either the student or parent can claim the benefit whoever pays the loan EMI.
A holiday period is given to the borrower or student during the loan term. During this period students don’t need to repay the loan amount. You get a moratorium period ranging from 6 months to 1 year from the date of completion of the course so that you can look for a good job that pays you well enough to start the repayment. If you are successful in getting a job right after the course completion via placement or any other source, the moratorium will reduce to 6 months.
It doesn’t mean the interest is not serviced during the moratorium period, you can pay it if you want and reduce the interest burden. Some banks also provide a concession of 0.50% if you do so.
Good Credit History
Timely repayment of an education loan will keep your credit score good and helps you maintain a good credit history. It can help you borrow some other loans in the future as banks and NBFCs check your credit score and history before disbursing a loan or issuing a credit card.
A credit score is a numerical representation of someone’s payment history, and as students are unemployed at the time of loan application, their credit score will be zero. But it’s a great opportunity for them to build a credit history with an education loan. You just need to pay your EMI before the due date and try to avoid due payments as much as possible. It will make your credit report strong and increase your credit score gradually as the tenure matures. Not only will your credit score be affected with the education loan payment, but it can also help the co-borrower, who could be your parent or guardian, improve their credit score. Because when you become a co-borrower or guarantor in someones’ loan, it is recorded to their credit history that affects your credit score directly.