What education loan terms students and parents should understand before making a decision ?

Introduction:

Obtaining an education loan for studying abroad in India can be a daunting task, as it often comes with a multitude of complicated terms and conditions. These terms, usually hidden in fine print, can significantly impact the long-term cost of education. In this article, we will provide an overview of important factors to consider when navigating through these complexities.

If you find this information overwhelming, feel free to reach out to us at www.Peaceful-Loan.com, and we will expertly guide you.

1. Interest Rate:

Most education loans have floating interest rates. Understanding the concept of floating interest rates is crucial.

Financial institutions may mislead borrowers by stating that the interest rate is simple interest when, in reality, it is a compounding interest rate after the moratorium period and simple interest during the moratorium period.

It's important to inquire about the compounding frequency, whether it is daily or monthly, as higher compounding frequencies make the loan more expensive.

2. Moratorium Period:

The moratorium period is defined as an EMI-free period starting from the loan sanction date, plus an additional grace period after graduation.

The intention behind this period is to allow students to settle down, find employment, and start earning before beginning repayment.

However, it's essential to note that most bachelor's degree students do not receive a moratorium period and must start repaying the loan immediately. The EMI is typically applicable only to the disbursed amount until the last calculation cycle, which tends to favor financial institutions.

For popular master's courses in countries like the USA, the moratorium period ranges from 6 to 12 months. During this time, banks charge interest on the disbursed amount, which is added to the principal if the borrower fails to pay the full or partial interest amount. It's crucial to understand that partial simple interest during the moratorium period does not waive the remaining interest—it accrues.

3. Loan Tenure:

Based on our experience at Peaceful-Loan, education loan tenures usually range from 8 to 15 years. In our opinion, longer tenures are preferable, provided there are no foreclosure or part payment charges.

4. Prepayment and Foreclosure Charges:

According to RBI guidelines, there are no foreclosure charges for partial or full prepayment of education loans. However, it's important to note that these guidelines do not apply to Non-Banking Financial Companies (NBFCs). Therefore, it's essential to check whether your lender is an NBFC or a bank. One commonly misunderstood entity is HDFC Credila, which is not part of HDFC Bank but is an NBFC.

5. Maximum Loan Limit:

The maximum loan amount can vary based on factors such as the student's destination country, university, course category, and the financial strength of the co-borrower. Many students compare their loan limits with those of their friends and become disappointed. At Peaceful-Loan.com, we actively educate students and help them set realistic expectations. It's important to note that offering collateral does not necessarily guarantee a higher loan limit. If your financials inherently support higher limits, it is possible, but having low or no income with significant collateral will not secure a large loan. It's crucial to have a clean financial record and a good income on paper to obtain a sizable education loan.

6. Disbursement Frequency:

Does the loan disbursement align with your term-wise requirements, or is it a one-time disbursement? Some students who are unable to secure an education loan opt for Loan Against Property (LAP) or Loan Against Security (LAS), which provide 100% disbursement on the first day. These loans are renewed annually with processing fees paid at each renewal.

7. Disbursement Recipient:

Different types of disbursements include direct disbursement to the university, disbursement to the co-borrower's account, and disbursement to the student's account. Disbursement to the university may attract additional charges like Forex fees, which are usually disclosed by banks at a later stage.

8. Covering Past Dated Payments:

Banks are generally willing to cover past dated payments up to the last 6 months, but negotiations are possible if the borrower's financials are strong.

9. Tax and TCS Advantages (80E):

Does your loan cover the 80E tax advantage and TCS advantage? It is important to ensure that these aspects are covered. While all banks legally provide these advantages, most NBFCs claim that none of their past students have encountered issues with claiming them. However, it remains a gray area with NBFCs.

Conclusion:

Understanding the terms and conditions of education loans for study abroad is crucial to avoid unexpected financial burdens. By considering factors such as interest rates, moratorium periods, loan tenure, prepayment and foreclosure charges, maximum loan limits, disbursement frequency and recipient, covering past dated payments, and tax advantages, students can make informed decisions. At Peaceful-Loan.com, we are dedicated to educating and assisting students in obtaining suitable education loans.

There are 20 plus such parameters to consider. Reach us in case you want to know more.