 "education loan")
When your savings are insufficient to cover your child's higher education expenses, an education loan emerges as a popular solution as they are readily accessible to eligible borrowers and encompass a wide range of expenses.
Apart from covering tuition fees, exam and library fees, accommodation costs, book expenses, and travel expenses for studying abroad, these loans often extend their coverage to other education-related expenditures.In cases where higher loan amounts are needed, lenders may request collateral as security. Common forms of collateral include fixed deposits, life insurance policies with a sum assured equivalent to or exceeding 100% of the loan amount, residential property, and non-agricultural land documents.
After the completion of the course, Student Loans have a period of 12 months which is known as the Moratorium Period. This is the time when only the interest part of the loan can be paid. However, you can pick the option of repaying the full amount in EMI during this period. This decreases the total loan amount from the start.
"An important feature of education loans is the moratorium, which is the interval between completing education and commencing loan repayment. In this period, borrowers are not obligated to make loan repayments, but interest accrues on a simple interest basis. For example, if you have a loan with a two-year moratorium period, interest will accumulate over those two years.
Once the moratorium ends, the EMI will be calculated, taking into consideration the accrued interest on the loan amount. If your financial situation permits, it is advisable to start repayment during the moratorium to reduce your EMI burden in the future," said Adhil Shetty, CEO of BankBazaar.
Interest rates across various banks for domestic education loans, as compiled by BankBazaar
Interest rates across various banks for domestic education loans, as compiled by BankBazaar
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Interest rates on education loans are influenced by various factors, such as the type of course, reputation of the institution, and the borrower's academic track record. Lenders also take into account additional factors like credit rating, collateral, and the credit score of co-borrowers.
Loans for overseas education:
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Data compiled by BankBazaar as on 4 July 2023. Banks for which data is not available on their website were not considered. EMI is calculated on basis of interest rate for Rs 20 lakh loan with tenure of seven years. Interest rate may vary in actual conduition depending on factors like Credit Score, loan amount, LTV etc.
Point to note: If you are an owner of a residential property or have an investment in Fixed Deposits, it is preferable to decide on a loan with collateral as a loan with collateral comes with a lower interest rate and decreased gross repayment cost of the loan.
Point to note: If you are an owner of a residential property or have an investment in Fixed Deposits, it is preferable to decide on a loan with collateral as a loan with collateral comes with a lower interest rate and decreased gross repayment cost of the loan.
You can also opt for a shorter tenure. Loans are available for a term up to 14 years. Longer tenures can decrease your monthly EMIs but it increases the overall interest rate notably. Therefore, it is always advisable to go for shorter terms if and only if one can afford to pay back faster.
Do not forget that the tax deduction segment under Section 80(E) of the Income Tax Act entitles you to a discount in the tax of an Education Loan. You are even permitted to reduce the complete interest amount in a financial year that is paid against an Education Loan. This is applicable for higher Education Loan.
Refinance your loan: You can also look for a loan transfer to get cheaper interest rates. "Negotiate with your present bank for a lower interest rate, and if it doesn’t agree, use a balance transfer facility. You might save a good portion of your interest amount when you choose a lender that offers you a low-interest rate on your education loan balance amount. To save more on interest payments, you can have the same EMI. This will cut short the tenure by some and help reduce your interest obligations," according to fintech firm Wishfin.
You can read more on how to invest for your child's higher education here.
