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One should try to know a number of important things before applying for an education loan.

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Education Loan in India - Things to Consider While Applying

What is Education Loan? With the cost of higher education increasing rapidly, education loan has become quite popular in recent years. It is also popularly known as Student Loan. It is designed to extend financial support to students who wish to pursue higher education. Education Loan helps students to pay off university tuition fees, living expenses, books, boarding and lodging etc. Education loan varies from other type of loans as the interest rate of this loan is substantially low. Students can start the repayment process after six months from the completion of their course or after they join their job.
 
Things to Know While Applying for Education Loan
When you plan to apply for education loan you have to do it with diligence and need to be very careful. The following points will guide you and provide you with tips about what to do and what not to do while seeking education loan.
 
Research and choose your college – The very first step in the direction of applying for education loan is to research and choose the college from where you wish to pursue your higher education. Make sure that the college and the course that you opt for is a recognized one. Also remember to explore about the placement record, alumini and faculty of the college.
 
Plan your financial requirements – Once you finalize your college and course, you need to plan your financial requirements. This part requires you to figure out the amount that you actually need, how much you can meet with available resources and how much you need to borrow. You first need to exhaust all other resources before you go around borrowing funds. Do not apply for the entire amount for loan.
 
Explore different plans and compare them – Now that you know how much you need to borrow from the bank or a financial institution you need to explore the different education plans that are being offered by various banks and financial institutions in order to crack the best deal. Opt for plans that offer subsidies. There are banks who offer special schemes and subsidies on interest rates for females.
 
Borrow within your capacity – Your aim should always be to borrow loan within your capacity. Your capacity here means your ability to pay back the loan. Try to borrow as low as possible if you are tight on budget and have other financial responsibilities on your shoulders. All the EMIs in your name should not go beyond 20%-30% of your monthly income.
 
Understand your Education Loan – Once you have zeroed in the education loan for yourself, make sure you understand the loan completely. Get a grip on eligibility criteria, documentation, amount, interest rates etc. check whether your loan covers all your education expenses that includes boarding and lodging, tuition fees, admission fees, deposits, library fees, laptop charges (if any), etc.
 
Weigh the advantages and disadvantages of education loan – Every coin has two sides. Education loans are undoubtedly a boon to students who wish to go for higher education but do not have the financial means to pursue their dreams. However, there may be few disadvantages or a darker side to the same. Prior to applying for education loan make sure to explore the hidden side of the loan which may include the repayment terms, margins and penalties in case of default in repayment.
 
Know clearly the Grace Period – The grace period of education loan varies from bank to bank. While you set your eyes on the education loan from a particular bank enquire about the grace period. Grace period is the time given to you after the completion of the course before you make your first payment. Have a clear knowledge about the grace period and make sure that the course you plan to pursue will make you capable enough to start off with repayment of loan within the grace period. Banks also provide you with flexibility for further deferment of loan. Check on these grounds as well as they will help you escape the delayed payment charges and defaulting in payments.
 
Choose the apt repayment option – There are banks which offer options in repayment of loan. If your bank falls in the same category make sure you choose the right repayment option that suits you the most.
 
Repayment Process – You need to be very cautious on the repayment process. This means you need to choose for yourself how you will repay your loan which means whether it will be through cheques, or you will opt for Electronic Clearing Scheme (ECS), or you will pay through some other mode etc. Different mode of payments will attract different service charges. Choose the one that suits you the best.
 
Know clearly about interest rate, charges and cancellations – When the loan gets disbursed, people usually concentrate only on the loan amount and the interest that they have to pay ignoring the charges like processing fees and other extra/over the top charges that serve as a setback. There may be few hidden charges that are not mentioned by bank authorities. To keep yourself secure make sure you know all the details regarding the cancellation process and charges. If in case a situation arises where due to unavoidable conditions you have to opt for cancellation of loan then you need to be well versed with the cancellation procedure and also have a crisp idea of the charges that you might have to bear due to this cancellation.
 
Choosing the guarantor – Education loan also involves a guarantor. When you apply for an education loan, you will have to mention a guarantor for the same. The guarantor is the one who stands besides you assuring that you will repay what you have borrowed with interest and within the stipulated time and also promises to bear shortfall, if any, on your behalf. Your guarantor should be someone who has a sound financial status or someone with a good position in a private or government job. This would improve your chances of getting your loan disbursed easily and quickly.
 
Read the terms and conditions carefully – Many of us avoid stressing our eyes by reading the fine prints of the document bearing the terms and conditions of the education loan that we are about to get. However, it is very important that you read the clauses of the documents and gain insights about the hidden charges etc before you finalize your loan.

Documentation –
When you wish to borrow money from any bank they would verify your identity and credit worthiness so as to make themselves sure that they are lending money to someone who will repay what he has borrowed with interest. You need to know clearly the documents that you would be asked for and provide the bank with all the supporting documents so that there is no hindrance when your loan gets disbursed. Generally, following documents are the once that are asked for by most of the banks - 
  • Identity Proof
  • Age Proof
  • Address Proof
  • Admission letter from college with fee structure
  • Qualifying the entrance examination for admission in the specified course.
  • Travel papers, passport, visa approval papers etc in case of foreign bound students. 
Clear all doubts – Asking questions can never hurt anyone. You should never hesitate in asking questions pertaining to the loan, interest or any other charges. Clarifying your doubts will always keep you safe and will help you to avoid unpleasant situations that may crop up latter due to ignorance.
 
Pre-payment of loan – Enquiring about the pre-payment of education loan, its process and pre-payment charges come handy when you have means to write-off the debt in your name as no one would surely want to stay indebted for long. Many banks, however, impose extra fees when you opt for pre-payment of your loan. Pre-closure of loan involves payment of some percentage of the outstanding amount of loan as extra charges. If you cannot pre-pay the entire amount of loan but can afford to pay higher than the EMI then do it. This would result in minimizing your principal amount and lowering your interest as well.


  • P.Krithica:
    I need Education Loan - what is the procedure for applying? which bank should i contact? i live in Coimbatore District Please give details?
    22-May-2013 03:46 PM