Look Before Taking Education Loan

The need of education loan lies in ever-increasing cost of education, with inflation adding salt to it. Here, the increasing need of education loans makes it prudent for all loanees to know about the deciding factors in education loan. In today’s competitive environment where you have choice of banks, one needs to look at others factors apart from interest rate, as they also play an important role.

Obviously, you would not like to pay more for loans in the form of fees and interests, hence, the factors like repayment tenure, repayment schedule, interest rate, repayment structure, fees, charges, etc., need to be considered.

Here, the most complex part about education loans is that there are no standard guidelines for banks to follow and thus the banks freely decide the terms and conditions. Even within the bank, terms and conditions are decided on case to case basis by bank officials, giving you the power to negotiate on the following parameters:

1. Repayment Tenure

Most of the banks have repayment tenure of 5-7 years. In case of education loans, repayment starts after moratorium period, which is a kind of holiday from paying EMIs. It ranges from 6 months after getting the job to 1 year after completing the course, in case of joblessness, whichever is earlier. Education loans generally bear a long tenure to make it easy for students to pay-off. Here, it is advisable to match EMI with your salary. However, in case you are not able to afford EMIs, negotiate with the bank of longer term.

2. Processing & Other Charges

Various allied charges, other than interest rate, are levied by banks for processing of loan. These charges vary from bank to bank. Some banks have fixed charges under different heads; whereas others levy a percentage of loan amounts. In addition, there are other banks which do not charge certain charges.

It is advisable to compare and find out the lowest charging bank as they can burden your monthly EMI, making you pay more.

Also, if you are taking loan of lesser amount, find out whether the rates levied as percentage will effectively be lesser for you. If you are dealing with the bank from a longer tenure, you can always negotiate for lessening or waiver of any or all of these charges on the basis of your long-term relationship.

3. Processing & Turnaround Time (TAT)

The time to get bank’s answer on your loan application and the time involved in disbursing the loan amount vary from bank to bank, giving you an additional point of comparison.

However, the processing time mentioned on the bank’s website is generally lower that they actually take. The only way to find this information is to get in touch with the existing customers of banks and go through online forums and complaint websites. If the turnaround time and the processing time of the bank are exceptionally good or bad, there are chances that you will find it in customers’ reviews, complaints, etc. In addition, you would also likely to get other information like that of hassled or smooth procedure, services, etc.

4. Interest Rates

Interest rates vary from bank to bank. Some banks provide loans at fixed rates of interest while others provide it at floating rates. It is in your best interest to compare interest rates in different rate regime and opt for the most effective one. The decision of rate regime depends on the likely future trend in the market. For instance, if you feel that market interest rates are going to increase, you must go for fixed interest rates, otherwise floating. Here, online comparison websites and tools can be of good use. Rates of few major banks are mentioned below:

5. Discounts, Insurance & Other Freebies

Generally, banks offer discounts for students taking admissions in premier institutes and also for girl students. Here, one needs to check whether his institute falls in the list of banks’ premier institutes and hence applicable for discounts. The premier list of institutes differs from bank to bank.

In the name of freebies, some banks also offer insurance covers and other schemes like this. In case of insurance, banks either deduct premium amount along with loan EMIs, or else give it for free.

Here, it is important to understand that when banks add premiums to the loan amount, it effectively raises your outstanding loan, making the insurance cover more costly with accumulating interest on it.

Understand the terms and conditions, be informed, and take a wise decision.