The number of Education Loan applicants has increased over the years, thanks to the rising cost of higher education. An Education Loan is often the first major debt taken by a borrower. It is essential to repay your debts in full, since failing to do so on time would lead to your Credit Score being adversely impacted, thereby harming your ability to acquire further debts in the future.
Here are some tips to help you make the most of your education loan.
1: Make Use Of Vidya Lakshmi Portal For Multiple Loan Application
Instead of applying for your loan with one bank and waiting for it to be approved or denied before approaching a second one, make use of the single window system under the Pradhan Mantri Vidya Lakshmi Karyakram (PMVLK). With the Vidya Lakshmi portal, you can apply for an Education Loan using a single application for up to three banks, saving considerable time and effort. The Vidya Lakshmi portal has over 40 registered banks and 71 education loan schemes for you to choose from as a loan applicant.
2: Apply With A Parent As A Co-Applicant
With rising defaults and NPAs for Education Loans, banks are being diligent while reviewing applications for new loans. As an Education Loan applicant, you can maximise your loan approval chances by applying with a parent as a co-applicant. If your parent has a good credit history and sturdy financial health, your chances of receiving the loan increase. If your parents are unaware of their credit history, you can check it using a free online credit report generator.
3: Seek Loans In Installments
For Education Loans, banks charge interest only on the amount of money that is disbursed. Many institutes and universities have a semester-wise fee-payment system. If this is the case, you may opt for the loan to be disbursed in installments. The overall interest you’ll have to pay with such a loan will be more pocket-friendly to you than a one-shot loan disbursal.
4: Pay Interest During The Moratorium Period
The moratorium period or the time between finishing your education and starting your loan repayment does not call for repayments of loan but interest gets accumulated on a simple interest basis.
If you have taken a loan with a two-year moratorium period, your loan will accumulate interest for those two years. The final loan EMI will then be calculated with the accumulated interest on the loan amount from the day the moratorium period ends. Paying the simple interest component during the moratorium period will make your loan EMI pocket-friendly by reducing the amount you need to repay, come repayment time.
5: Do Not Overlook Tax Benefits
Education Loans offer tax benefits under Sec 80-E of Income Tax Act. What many applicants overlook is that this deduction is offered only if the loan is taken from a registered bank or NBFC, which is a gazetted financial institution. The tax deductions on Education Loans are offered only for a maximum period of eight years. So even if you are planning to have a long-tenure Education Loan, the tax benefits will be applicable for eight years or till the time the interest is paid, whichever happens earlier.
Education Loans bridge the gap between you and a rewarding career. They cover your tuition fee as well as your living expenses while you study. Depending on the nature of the course you are pursuing, you may even get a loan to cover 100% of your costs. All said and done, Education Loans are ‘good loans’—the kind that help you acquire an appreciating asset which, in this case, is your career.
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