How to take education loan?
An education loan can be a saving grace. However, high interest rates and the cumbersome process could come as a dampener. Read on to find out how to get the best deal?
High cost of study does not imply that you can't pursue your chosen programme. Now a days, most banks provide education loans. In fact, study loans are categorised as priority sector lending for public sector banks. But again, it does not mean that lending institutions are quick to disburse loans for all programmes and for all institutions. It is a rationed product as Harsh Roongta, CEO apnapaisa.com describes it.
How much education loan should you take?
LOAN Vs EMI
Loan repayment period
Loan amount after moratorium
50% of Net Salary for servicing debt
Amount left in hand after paying EMI
This question may haunt you if you don’t do cost benefit analysis (Refer Box: Fee Vs EMI). The maximum loan that lenders disburse for studies in India is Rs. 10 lakhs and for overseas Rs. 20 lakhs. Credila provides loan above Rs 20 lakhs.
The education loan would depend on the course fees and your capacity of generating down payment (initial payment from your own pocket) towards it. For a loan above Rs. 4 lakhs, one has to generate minimum down-payment of 5% for studies in India and 15% for studies abroad. For a loan below Rs. 4 lakhs, one can get the entire fees as loan. But you can pay the down payment or the margin money piecemeal. Allahabad Bank, for instance, takes the margin money on year-to-year basis and disbursements are made on a pro-rata basis. Though a student may be eligible for uppermost loan limit, he should exercise prudence while applying for education loan amount. If the course for which the loan is being taken enables better earnings then it may more than justify the loan, says Harsh.
Default on education loan repayment?
The education loan repayment period is between five and seven years and it starts from one year after the course completion or six months after securing a job, whichever is earlier. But in case of Aparna Singh, the bank from which she took loan, told her that repayment period would start within six months of course completion. “I have to find a job within this period,” says a little stressed out Aparna. She is not taking up the campus placement as she possesses four years of work experience and wants to be placed suitably. “So, I have to find a job myself in these 6 months,” she adds. The clock will start ticking for her as soon as the course gets over in a month and a half. Students, too, must make these aspects into mind because any default in repayment of loan would smear their credit track record.
Even though the default is unintentional, a student, who foresees problems in servicing loan, should immediately request the lender to re-schedule the payoff beforehand. If the lender agrees - as they do in many cases, it is fine. “Otherwise there is no real option,” says Harsh of apnapaisa. In case the student is not able to pay education loan, the default will be reflected in his credit information report, says Harsh. Default gets reported in the Credit Information Bureau Limited (CIBIL) as well, which can affect the credit history of the student. Legal proceedings take place in case of defaults. “Also, the collateral can be confiscated in case of the default,” warns Dinesh of Credila. If students are regular in servicing the loan then access to future loans like auto loans, or housing loans can be negotiated at competitive rates, based on the good credit history. So, follow the golden rule and approach your dreams in good faith. Set off now.
EDUCATION LOAN CHECKLIST
EDUCATION LOAN RECKONER