The education of their children is a critical goal for almost all Indian parents. Parents dream to give their child the best of education but it is difficult due to the hike in annual fees for different courses in India and abroad.
This is where education loans play a significant role in building your child’s career. As a parent, you should not abstain from the idea of taking a personal for education. An education loan not only supports your child’s education but also offers attractive tax benefits.
However, while providing the best education is priority, not many parents may actually be able to meet this goal.This is because the cost of education has been spiralling over the years, with education inflation pegged at a whopping 10%. Starting to save early is critical. If parents start to save for their child’s education immediately after the birth of the child, they would have 18 years to save for graduation and 21 for higher studies.
Guidelines for Parents while taking an Education Loan
- Parents should not worry about Collateral
Parents often hesitate to opt for education loans due to the fear of mortgaging assets/property for the loan. Break this myth and go for the educational loan today as it is totally collateral free. Education loan is also a type of personal loan that is of collateral free nature. This reduces loan sanction time and makes the process hassle-free.
- Parents should check for the Interest Rate
Interest rate is one major factor that influences the loan amount and instalments. If the interest is high, the repayment amount will increase. Hence, parents should compare different interest rates that lenders and financial companies offer and shortlist the suitable one from a credible source.
- Make use of Moratorium Period
This is only applicable to education loans and certain lenders or any government based financial company does not begin the loan repayment period until the student finishes the course of studies or completes 6 months of the job.
- Parents can rely on Instant Personal Loan Apps
Making a loan application through an official web site or an instant loan app ensures paperless way of verification with minimal documentation. This ensures faster approval of loan. So always choose a lender who provides online education loan for quick approval and disbursal, before the admission dates run out.
- Parents should not get into Defaulters List
While taking an education loan seems easy, paying back requires planning. If you default in repaying the loan, it may spoil the credit score and affect the borrower’s financial stability. If EMIs are overdue for 90 days, the lender categorizes the loan as a non-performing asset.
What to look for
1. Interest
This is the most important factor when it comes to choosing any loan and an Education Loan is no exception. Education Loans in India don’t come cheap However, banks reduce the interest by 1% if the interest is paid while the child is studying and the loan is repaid without any default thereafter. Students getting into prestigious foreign universities also have the option of loans from foreign institutions.
2. Collateral
Since defaults are common, public sector banks usually insist on collateral for loans above Rs.7.5 Lakhs. Though several financial institutions provide education loans without collateral or mortgage, it is better to provide one to reduce interest costs. Accepted collaterals include a house, a plot or fixed deposits.
3. Co-borrower or Guarantor
As a standard practice, most financial institutions insist on a parent or guardian as the co-borrower/guarantor. The number of years of service of parents plays an important role here.
4. Margin Money
Check how much the financial institution will fund and how much you need to put in. Your contribution is known as the Margin Money. This requirement varies depending on the lending institution, amount of loan and place of study. For example, PSU banks usually charge 5% margin for loans above Rs.4 Lakhs for students studying at Indian institutes and 15% for studies abroad. Private players, on the other hand, are ready to fund without any margin requirements. However, make sure that you don’t pay higher interest just to avoid paying the margin.
5. Moratorium
Unlike other loans, EMIs don’t start immediately for Educational Loans. In addition to the course period, there will another Moratorium Period for looking for a job. This Moratorium Period usually varies between 6 and 12 months. If the parent pays interest during the course period and Moratorium Period, the EMI will be based on principal only. If the borrower decides not to pay interest, the same will be accumulated and EMI will be based on loan plus accumulated interest.
6. Duration
This is one area of an Education Loan that has seen a sea change over the years. The maximum duration institutions used to give loans for was 7 years, which has now been extended to 15 years. This has meant a reduced EMI. In other words, the child will be able to service the loan it even if the initial salary is low. Since there is no prepayment penalty, it is better to opt for the longest possible duration. However, some prefer to close the loan as quickly as possible.
7. Documentation
The documentation is similar to that of other loans. On an average, a credit score above 700 is considered good. The lenders will also insist on admission related documents. Papers related to the collateral will also need to be submitted. For example, if you are pledging your flat in a housing society, you need to submit documents like Share Certificate, Original Sale Deed, No Objection Certificate (NOC) from the society, etc.
8. Speed
This is critical because most institutes will not give too much time to secure admission. This means, you need to start the process a early. Taking pre-approval and keeping the tentative loan ready is one way to speed up the process. Several foreign institutes insist you demonstrate the ability to pay fees and pre-approved letters come in handy then. However, the final disbursement happens only after your ward gets confirmed admission.
Where to get Education Loans ?
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