Before Taking Education Loan: 7 Most Important Points to Consider
Good education is essential but on the other hand it has become very expensive whether you are planning to pursue studies in India or abroad. As competition is increasing it has become challenging for many students to secure admission in a good college of their choice.
With race towards getting admission in a top college getting fierce, parents are ready to shell out money to provide best education to their child and take help of educational loan especially for bachelors’ degree in engineering, medical and sciences etc. to fulfil the requirement. And the need of money further increases for master level degree courses such as MD, MS, MBA and others.
Almost every Indian bank is happy to provide study loan and there is not much difference a loan offered by various banks. And banks normally consider factors such as your academic performance, college reputation, repayment capacity of parents etc. So before taking education loan, here are the seven most important points to consider:
- Interest Rate: This is the most crucial factor to be considered before taking any loan be it car, education, housing etc. Because a difference of even 0.5% creates a big impact. Also make sure to check whether the interest rate is floating or fixed although it depends on the loan amount. Normally the interest rate is between 12%-17%. Before taking loan you should do a thorough research on interest rates offered by various banks and select the one which suits the best to your repayment capacity. Typically there are four important factors on which the interest rate is decided: location of study, course applied for, loan amount and tenure.
- Repayment Period: Check out this with the bank. Normally student starts loan repayment after he/she starts earning and there are possibilities that earning does not start immediately after the course ends. So get this point checked as you would end up paying more.
- Down payment: Whenever you take a loan, down payment should be deposited in the bank which is normally 5%-10% of the loan amount.
- How the interest is charged: Every bank has different way to charge interest. Keeping loan active for a longer duration puts borrower indebted. So after finishing the education, the first objective should be to repay the loan amount as early as possible.
- Security: While taking a loan, borrower needs to deposit security with the bank and this differs for each bank. So make sure to evaluate this aspect before making loan application.
- Other fees: Apart from interest rate and late payment fees, banks also charge a processing fee, documentation fee and others. So always be informed about these charges and keep yourself upto date for any changes in any type of fees. For e.g. if interest rate on loan amount is reduced, check if the change has been applied in your account. If not, then send a written E-mail to the bank, so that in case of any future dispute, your E-mail will act as a proof.
- Processing Fees: Although this is not charged by most of the banks but still it is your duty to verify this because it is possible that banks might offer you loan at a low interest rate but will levy processing fees without specifying.
The loan amount varies from bank to bank. For education within India loan offered is Rs. 15, 00, 000 and foreign studies would cost Rs. 25, 00, 000. And normally this amount will cover fees for library, tuition, hostel etc.