The cost of education keeps going up, and the best of us fail to keep pace with this inflation despite years of investment. This is where you need to rely on Education Loans.
Education Loans come handy not just in catering to admission and tuition fees, but also in meeting expenses associated with accommodation, food, commute, books and stationery.
Let’s look at a few things that one needs to know before taking an Education Loan from any bank across India.
1) Loan Eligibility
To apply for a loan, you need to be an Indian citizen and should have secured admission in a college which is recognised by a competent authority in India or abroad.
The borrower of an Education Loan is the student so it’s relatively easier to get a loan sanctioned if you have a job. If you don’t have a job at the time of applying for a loan, your parents, siblings or spouse needs to be the co-applicant, while you are the primary borrower. The loan amount offered varies from bank to bank, so a quick check on the type of courses covered under the loan is mandatory to avoid any future ambiguity.
If the income of the co-borrower / guardian is not sufficient, banks often ask for collaterals for sanctioning a loan amount between Rs. 4 and 7 lakh. Any amount more than Rs. 7.5 lakh requires joint borrowers along with some tangible security collateral of equivalent value.
2) Interest Rates
All new bank loans are linked to the MCLR, which is the lending benchmark for each bank. A credit spread is applied to the MCLR. As of today, the MCLR for most banks falls within the 8-9% range and the spread may be upwards of 40 basis points. Female students, scholars with high marks, and students applying to premier institutes may avail concessions on the interest rate. Concessions may also be allowed on prompt payment of interest.
3) Down Payment and Repayment
Banks may need you to make a down payment typically of up to 5% for admission in India and of 15% for admission abroad. After completion of the course, the student is allowed a moratorium period, which usually lasts for 6 to 12 months. This period is often referred to as repayment holiday. The repayment tenure starts after completion of the repayment holiday and lasts for five to seven years. However, it can be extended with the bank’s permission.
4) Income-Tax rebate
As per Section 80E of I-T Act, you can avail income tax benefits on the interest part of your Education Loan up to eight years. However, the principal amount doesn’t qualify for such rebate.
5) Read terms and conditions well
Each bank has its own norms, and while all of it might not be verbally conveyed to you at the time of the loan disbursal, it’s all mentioned in terms and conditions section in your loan documents. Read through the clauses and make sure you are aware of all associated charges such as the processing fees, charges involved in pre-payment or late payment of EMIs etc.
Education Loan is a great aid in building a successful career. Since the use of all forms of credit gets reported to agencies such as CIBIL, it’s wise to keep making timely EMI payments to maintain a good Credit Score.