Education loans are nothing short of a blessing for all those students who are eyeing of acquiring their higher education from some of the finest institutions/universities from both India and overseas. Here, you get to become well-versed with how you can effectively handle an education loan.
Apart from housing loans, education loans are categorized under priority lending. As per Indian Government, the facility of education loan should be provided to all the students if they fulfill the criteria. However, it is not easy both for the students and the parents to manage the repayment process. So, let us cut the clutter and here are 5 smart ways to manage your education loan.
1. Make The Most Of The Provisions
When we talk particularly about education loan, then there are several relaxations to the student borrowers, the best way is to find the one that suits your requirements. If you are a meritorious student, make sure you look for the bank that waive off the margin money i.e. the percentage of the whole expenses you need to pay.
Margin money is charged when the loan amount is over Rs. 4 lakhs. If you are a female student, you can look for a lower interest rate as they are offered with 0.5% relaxation upon interest payment. In addition, avoid taking the loan amount all at once, instead go for the installments as this will reduce the load of interest rate significantly.
2. Make Sure You Don’t Default
Seeing the hassle free availability of education loans, there has been a sudden surge in the number of defaults. If you default, it will not only spoil your credibility as a student and it will also affect the credit score of your parents/guardian as well. Let us assume, if the EMIs falls due for over 4 months then, in that case, the bank will take the loan as a bad debt or non-performing asset. Make sure you have avoided such situations at all costs.
3. Manage Rate Variation
Usually, the interest rate on education loans is the base rate and a fixed spread which tends to vary from bank to bank. An education loan can also be termed as floating rate loan. It is important to have a buffer amount to meet the possible fluctuations in the interest rates. In the event there is a sharp increase in the interest costs, EMIs will stay the same, therefore it is imperative you have maintained a good credit score by making timely payments of the interests.
You have to ensure you are well-versed with the best moves so that you are able to repay your education loans easily. You also need to think twice before you make a prepayment for the loan amount as any fault may lead towards cost increase for maintaining the education loan.
4. Have Plans To Repay
It is a smart approach to plan for the repayment way before the arrival of the actual time. Generally, the repayment starts post moratorium period and it is termed as repayment holiday. The moratorium period lasts for one year after the completion of your education term or six months after you have got a job, whichever is earlier.
5. Make The Most Of The Moratorium Period
Repayment of the education loan does not start immediately. You can use the extra time to build a corpus. You can use the money either for EMIs or to make partial pre-payments. In order to bring down the EMIs, you can also repay some interest while you are studying. The bank starts charging interest rates on the education loan right after the disbursement of the loan amount, on the yearly or half-yearly basis. The amount keeps aggregating, increasing the burden of debt.
However, if you will pay simple interest on the principal while you are studying, it will significantly bring down your EMIs. Most of the banks usually offer a concession of 1% interest to all those who prefer to repay the interest debited amid the moratorium period.
Author Bio: Hi, my name is Ankita Dixit. I started writing from young age and most of my writing skills and knowledge are self taught. Currently, I am working as a professional writer at Paisa.co. I have write on various topics including travel, motivation, finance, technology, credit cards, insurance and entrepreneurship etc.