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 you are denied access to a chosen programme. Most banks are into lending of 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 to all kinds for all programmes and for all institutions
How much education loan should you take?
This question may haunt you if you are 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.
The education loan you should take would depend on the course fees and your capacity of generating down payment (payment from 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, as the banks claim. 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 filling the 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 credit told her that repayment period starts within six months of course completion. “I have to find a job with in this period,” says a little stressed out Aparna. She is not taking up the campus placement as she possess four years of work experience and wants to be placed suitably. “So, I have to find a job myself in these 6 months,” 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 clear with the bank because any default would smear their credit track record.
Considering that the default is unintentional, when a student foresees hiccups arising in loan servicing then he/she should request the lender to re-schedule the payoff beforehand. If the lender agrees – as they did in quite a few cases in early 2009 when the employment markets was adversely hit – then 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 If students are regular in servicing the loan then access to future loans like auto Loans, housing loans can be negotiated at competitive rates, based on the good credit history. So, follow the golden rules and approach your dreams in good faith. Set off now.
Education Loan Checklist
Obtain a checklist from the bank beforehand and keep all the papers and documents ready which the lender would require.
Approach the bank with which you (your parents) have an existing relationship with.
Check up if the institute you have applied has any tie-up with banks for education loans. This expedites the process
Compare the rate of interests of banks, says Rishi Mehra, founder-director, Deals4loans.com. While Axis Bank interest rate is 14.25% for studies in India, Bank of Baroda charges 13.5% for loans above Rs 4 lakhs.
On paper, lenders may declare they loan processing is 7-14 or 30 days but be prepared, it may take more time.
Most banks would state that repayment starts after one year moratorium period, or after six months of securing a job, whichever is earlier but in reality some banks lend only on the clause that the servicing of loan starts from six months after the course completion.
EDUCATION LOAN RECKONER
Education loan procurement is easy if the programme is recognised and the college/ university is government affiliated/ approved.
study loan overseas is easy for job-oriented professional/technical courses. Students applying in private colleges which have good placement record are entertained.
Banks lend up to Rs. 10 lakh for studies in India and Rs. 20 lakh for education overseas.
Banks provide loans only between 75 to 90 per cent depending on the total cost of the course and the rest of the fund percentage you have to generate from your own sources.
Education loan interest rate varies from bank to bank, which could be anywhere between 11-14%
Banks may claim to offer loan up to Rs 4 lakh without collateral, however, that’s usually on paper. Banks ask for collateral.
Collateral includes assets like national security certificates, insurance policies, bonds and property papers.
How much credit to take? Check the placement record of the institution and do a rough calculation on the expected monthly income you are likely to draw as fresh employee. Don’t forget to take into account the running expenses.
A few banks allow a moratorium on interest payment, but under this option, the interest is compounded quarterly and added to the principal sum for repayment. Banks offer lower interest rates (usually one percent if you start repayment during the moratorium period).
Source : http://www.studyabroad.careers360.com/how-take-education-loan
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