It’s that time of the year when students are prepping up for higher studies and parents are busy putting together a fund to finance the education. An education loan comes handy at a time like this.
The cost of education has only been increasing with time. However, thanks to the banks and NBFCs, education loans have become increasingly popular and easy-to-avail to overcome the financial challenges faced by students and parents to fund higher education.
Although, easy availability of education loan makes things convenient, you need to carry out due diligence before taking a loan.
Aim for a top institute
Banks offer loans at a lower interest rate if the student gets admission in a premier institute. Banks typically want to look at the letter of admission from the university, academic records, break-up of the cost, visa approval papers etc. If the loan amount is more than Rs 4 lakh, the bank requires you to make a down payment of 5% for admission in Indian institutes and 15% for admission in institutes abroad. Big-ticket loans also require collaterals which amount to be higher than the loan amount. However, banks often waive the collateral in case of admission into a premiere institute with good placement records.
You must start planning your loan right when you start test preparation for your course. A loan approved in advance often comes handy, especially when you are applying for higher education in a university abroad. You might be asked to furnish proof of resources or fund at the time of application. Even if you do not need to submit proofs at the time of applying for a course, you would not get more than three-four months to get a student loan sanctioned after getting confirmation from the university. Starting early will give you time to compare and zero in on the product that best suits you.
Choose Your Bank With Care
Many banks and NBFCs have jumped to the fray in the last few years to offer education loans, so getting a loan has got easier over time. However, you must try and find the one which doesn’t just offer a low rate of interest but also has the best term to pay back and allows you to pre-pay the loan. Also compare the loan products available in the market in terms of the additional costs associated with the process.
Self-finance The Living Cost
If you are planning to go to countries such as U.S., U.K., Canada, Australia etc., the cost of living is going to be higher than in India. This could inflate your loan amount if you do not self-finance a part of these expenses. You could explore alternatives by taking up part-time jobs such as working at the library or as a lab assistant etc. while studying. In fact, some universities offer these opportunities on their premises.
Avail Repayment Holiday
Repayment holiday is a unique feature of education loan. You are allowed to not pay EMI for a period of up to 12 months after the course ends or six months after getting a job, whichever is earlier. This comes handy especially when you don’t land a job immediately after the completion of a course. You can start paying EMI as soon as you find yourself in a financially comfortable position. Having said that, your interest accrues over the period you do not pay EMI, so start repayment at the earliest you can.
The writer is CEO, BankBazaar.com