Key things to consider before taking Education Loan5 min read
Just like all other types of loans, it is essential to collect as much information as possible when taking a loan for education. Some of the most important things you should definitely know about before applying are stated in this post. An Education Loan is an excellent way to fund your higher studies at a college/university in India or abroad. If you are eligible, you can take the loan for yourself, your spouse and your children. Moreover, if you are a legal guardian to a student, you can take the loan for their education as well.
While there are now several banks that offer such loans, there are few essential things you should know about to make an informed borrowing decision. Five such crucial points are as follows:
- Eligibility criteria
- The first thing you should know about is the eligibility criteria for the loan. While the requirements can vary between lenders, they are more or less the same. Things like your credit score, income, existing loans, age, etc. would be taken into consideration by the lender.
- Moreover, you should also know that the loan is not available for every course, expense, or college/university. You can get in touch with the lender you are interested in to know more about the courses, expenses and colleges/universities for which they offer the loan.
- Secured or unsecured
- For effective Education Loan comparison, you also need to make sure whether you want a secured loan or an unsecured loan. Student loans are generally available in both variants. If you go with the secured option, you will be required to pledge collateral like your home against the loan amount.
- Decide before applying as the selection can have a significant impact on the interest rate, loan amount and loan tenure.
- Interest rate
- You also need to compare the interest rate as it will significantly impact the overall amount you repay to the lender. The Education Loan interest rate can vary considerably between lenders, based on your eligibility, loan amount and loan tenure.
- A few top banks in India offer Education Loans starting at just 11.5% per annum. Consider such lenders to make sure that the loan is both convenient and affordable.
- Margin money
- You can think of margin money in loans for education as the down-payment you make in other types of loans like Home Loans. This is generally a certain percentage of the total cost of education/course. For instance, if the fee of a course is Rs 10 lakh, the bank might approve a loan of Rs 8 lakh even if you meet their eligibility requirements.
- You will then be required to pay a margin of Rs 2 lakh from your own pocket. So, do check the margin requirement of the lender. You can also find the best Education Loan in India that do not have any margin requirement up to a certain extent, like for loans of up to Rs 20 lakh.
- Loan tenure
- Last but not least is the loan tenure. Most banks in India generally offer student loans for up to 8 years in case of the unsecured loan (without collateral) and up to 10 years in case of secured loans (with collateral).
- Also, there is an additional moratorium period of generally around six months after course completion where you can only pay the interest part of the loan. But this period too can vary between lenders.