Non-repayment of education loan can now affect one’s credit score, a top official of Credit Information Bureau (India) Ltd (CIBIL) has said. The data released by CIBIL throws significant light on education loan trends in the country.

While the demand for educational loan is need based, the number of new loan accounts opened in calendar year are almost same over the last five years, it said.

Does Education Loan affect CIBIL?

Yes, your education loan can have a great effect on your CIBIL score as they are just like any loan and have to be repaid to keep up a good CIBIL score. However, the only difference here could be that it can be paid once he/she completes the course (education) and gets employment.

Also, just like other loans, education loan is also reported to CIBIL and gets reflected on your credit report. This can have a positive or a negative impact on your credit score hugely depending on your re-payment behavior. Besides, non-repayment of education loan will adversely affect your credit score.

Some Tips to Avoid Defaulting on Education Loans

7 Tips to Keep in Mind While Applying for an Education Loan

If you want to get a degree from a renowned institution in India or overseas, you definitely have to plan your finances, as education can be quite expensive. Even though there are institutions that offer scholarships, a majority of students are not able to secure them and therefore they have to opt for educational loans. Here are a few tips you can follow if you are applying for an education loan:

1. Start the loan procedure way in advance

If you have decided to join your desired educational institution, it is better to start your process way ahead of time. The loan process takes a lot of time as it involves heavy document verification, approval from the bank, and so on. Applying for the loan in advance will save you from any hassles later. Hence, it is ideal to apply beforehand.

2. Be thorough with paperwork

Loan application requires a lot of paperwork and you should start collecting them at the earliest to save last minute hassle. Make sure you arrange all the documents properly as it will help you speed up the loan process.

3. Browse and compare Interest Rates

Once you have decided to get an education loan, you should check the interest rates from a number of lenders before coming to a decision. It is better to compare the interest rates as each lender offers different rates. After you have completed the research and decided on a bank or a lender, you should go one step ahead and even negotiate on the rate. It is completely normal to ask the lenders to waive off or give a discount on your loan processing fee and other charges. This will surely save you a good amount of money.

4. Look out for loopholes in your Loan Documents

You should be extra careful at the time of signing the loan documents and watch out for loopholes or hidden charges. Make sure to read the documents in detail multiple times and double check on the interest rate, loan amount, payment structure, penalties and conditions for pre-payment, the disbursement process, etc.

5. Learn about your Tax Benefits

You are entitled to tax benefits on your education loan under Section 80E of the Income Tax Act. The deduction is only available for the full interest on your loan from your taxable income. It must be noted that the deduction is applicable only to the interest and cannot be availed on the principal amount which you pay towards your education loan.

6. Know the results of Defaulting Payments

At the time of finalising the loan, you should be aware of the penalties of not paying off the loan at all or not paying off the loan same as per the decided schedule. For some reason, if you are not able to repay the loan amount, you should first inform the lender at the earliest as they can help get you more time for the payment. In case you turn out to be a defaulter, your guarantor will need to make the payment. If you are unable to pay off the dues, your credit score will take a hit in a big way and will be down by several points.

7. Check whether you can Pre-Pay the Loan Amount

When you are pre-paying your education loan, it is better that you do a detailed cost-benefit analysis as you might have to pay a penalty. In addition, to reduce your monthly EMI amount, you should check with your bank about starting the repayment of interest while you are studying.

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