Six Things to Consider Before Choosing an Educational Loan
May 18, 2018
A good education is a key to professional success. With the number of graduates on the rise and a declining demand in the job market, candidates are turning to highly specialized courses from top universities within the country and abroad. The cost of education has also been exponentially rising, forcing most students to apply for education loans. Now thanks to improved offerings, individuals can choose from several loans offered by various banks. However, it’s best to have a thorough analysis before zeroing in on an educational loan. Here are a few points to consider before you sign the dotted line.
1. Loan Amount
When applying for education loans, this is among the first things to consider – how big is the loan amount? A higher education in a reputed American or Australian university will cost over twice as much as the tuition fee for an MS from foreign University or an MBA from top Indian B-schools such as IIM, XLRI, ISB. Loans of a considerably high amount will require you to have a third-party guarantor. Depending on the loan amount, a collateral might also need to be submitted. Hence, many additional factors need to be considered depending on the loan amount.
2. Interest rate
Then, of course, there’s the interest rate. It’s one of the most highly weighed factors when it comes to choosing education loans. Interest rates generally vary between 8% and 10%. At this stage, you might also want to check if the interest rate decreases in case of early payment. A small difference in the interest percentage can make a considerable difference in terms of your loan debt.
Some people tend to take loans that allow EMI payments. This enables the candidate to make part payments. However, lower EMI costs are often associated with a longer loan duration. If there’s a financial crunch, this option works. But for others who can pay off their loans, choosing a longer loan duration will result in payment of a higher interest and principal amount over the years.
Before applying for a higher education loan, it’s essential to consider how much expense the loan will cover. While every education loan will cover basic tuition fees, a number of other expenses such as book materials, hostel, exam fees, library/laboratory charges, etc. often catch students by surprise. Hence, it’s best to have a thorough analysis and consider every aspect of university living before choosing a loan.
5. Moratorium Period
This is the waiting period after taking the loan during which the candidate is not required to make payments. In case of education loans, the moratorium period begins between 6 and 12 months after the course completion. In many cases, some banks also agree to extend the moratorium period in case the candidate hasn’t been able to find a job or needs more time to disburse payments.
6. Tax exemption
Most education loans come with tax benefits under Section 80E of the Income Tax Act. The higher your tax exemption, the more favorable it is for you. However, the benefits only pertain to the interest paid and do not take into account other surcharges that come with the loan. Hence, it is important to assess these factors before choosing an educational loan.
Choosing an education loan is not easy, especially considering the number of options available and the various parameters involved. In fact, many times candidates might often get stuck between having to compromise between one aspect or another. If you’d like a more narrowed down, customized loan structure – one that’s crafted based on your requirements, Nitstone Finserv can help. A leading NBFC (Non-Banking Financial Company), Nitstone Finserv is regulated by the RBI and endeavors to provide easy access to easy Education loan online.