The majority of Indian Parents place a high priority on their Children’s Education.Although it is important to provide children the greatest education possible, not all parents may be able to achieve this objective. This is due to the fact that the price of education has been steadily rising over time, with an astounding 10% inflation rate for the sector. An example: Over the previous ten years, the IIMs’ postgraduate programme costs have climbed by up to 150%.

Funding Options for Kids Education

You can also use a private bank to apply for an education loan given that the majority of public banks have rigorous credit requirements. If you have collateral to offer, you may choose a secured loan; otherwise, you can choose an unsecured loan, which will have a higher interest rate.

Students can access financial solutions offered by banks through Vidya Lakshmi’s single-window portal. It is a government website that links students to several banks using a single application form for a Common Educational Loan. The student must register and log in to the Vidya Lakshmi site before filling out the Common Education Loan Application Form (CELAF) with all the necessary information. After submitting the form, the applicant can look for an educational loan and apply in accordance with his or her requirements, eligibility, and convenience.

By taking out a personal loan, you may still assist your kid in receiving the quality higher education they deserve even if you have poor credit or inconsistent income. You can utilise the money from a personal loan to pay for your child’s college education from any public or private bank.

What factors should Parents consider while taking Education Loans?

  1. 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.
  2. 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.
  3. 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.
  4. Do 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.

Do I add my name to the Loan for my child as a Co-Signer?

For educational loans from public banks like SBI and Bank of Baroda, you must cosign and also have a respectable credit rating. On the other hand, if a student has a strong credit score and a consistent source of income, private banks will provide education loans to them without requiring a co-signer. The banks find it exceedingly challenging to then grant college loans to such applicants because the majority of high school students have no credit history at all or a consistent income.

Does getting a Loan with a low Credit Score ever make sense?

Private banks and NBFCs offer education loans based on the applicant’s or cosigner’s good credit history, much like in a public bank. However, on the grounds of higher interest rates, these private banks and NBFCs provide education loans to the applicant who either has a low credit score or a cosigner with a poor credit history. You might also look at merit-based school loans for your kids, whose interest rates are set depending on how well-qualified and employable they will be in the future.

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 (see chart). “Since the aggregate NPA of educational loan is very high—9.5-10%—banks charge a higher interest

2. 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.

3. 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.

4. 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.

5. Documentation

The documentation is similar to that of other loans. Since lenders will check the credit score of the parent and student, the score should be good

6. Speed

This is critical because most institutes will not give too much time to secure admission. PSU banks are as quick as private lenders when it comes to disbursing home and personal loans, but not education loans. This means, you need to start the process a early.

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