How to choose your bank for Education Loan to Study Abroad
Education loan plays a pivotal role in the lives of meritorious students who aspire to study at a premier institute but lack the required financial resources. With education loan, it has become easier for parents to send their children abroad for higher education. Competitive interest rates, longer moratorium periods and flexible repayment terms also enable the students to take responsibility of their higher education.
Choosing the right course and university that best fits your interest area and career goals, similarly, choosing a bank/financial institution for education loan also requires extensive research and deep analysis of your financial standing and requirement.
In India, many banks and financial institutions extend financial aid to students aiming for higher education in India and abroad. However, the set of features and services associated with every lender are different. The interest rates, processing fee, moratorium period, prepayment terms, tax benefits, repayment tenure and conditions vary largely among banks. It is, thus, advised to compare and then opt for a package that is aligned to your needs.
Gather details on the following points before making a decision:
Interest rate remains the most important factor to be considered while selecting a bank for education loan since even a small difference can help you save a significant amount of money. Understand the difference between fixed and floating rate of interest, compare interest rates offered by various banks and financial institutions and opt for the most cost-effective option.
Education loans taken from scheduled Indian banks and gazetted financial institutions are eligible for tax deductions on interest part of the loan under Section 80E of the Income Tax Act of India, 1961. Tax deductions can be availed for a total of 8 consecutive years – the year in which the loan is taken and 7 consecutive years or till the interest part of the loan is completely paid off, whichever occurs earlier.
Eligibility and Documents
Most banks and financial institutions have an evaluation process to determine your eligibility of the loan. The process includes a thorough review of your academic background, credit worthiness, co-applicant details, family income etc. The amount of loan disbursed also depends on the nature, of course, you have applied for, the reputation of the college/university and the employment probability post course completion. Also, not all lenders extend financial aid for all courses so it is recommended to check your eligibility in advance.
It is also advised to get the list of required documents from the bank to give you ample time to gather missing documents and begin the loan application process in time. Most banks usually ask for address proofs, a copy of mark sheets of previous education and entrance exams, passport size photos, co-applicant’s income proof, etc. While some lenders also ask for a confirmed admission letter from your university, some lender approves education loans even before confirmed admission.
The amount of education loan disbursed depends on a lot of factors like academic background, the reputation of college/university, co-applicant’s credit history etc. While some banks cover the complete cost of education, some banks cover only a part of it. Make sure you ask your education loan provider about the costs covered in your loan. These costs are tuition fee, lab and equipment charges, library and examination fee, personal expenses and travel fare in case of overseas education.
Lending banks and financial institutions give a grace period of six months to one year after the completion of the course before the prepayment starts which is known as the moratorium. This is done to give students time to acquire a job and gain financial stability before they begin to repay their education loan. In some cases, however, it may be required to extend the moratorium period due to unavailability of job or an unexpected financial obligation. Ask your lender about their policies and charges, if any, for extension of moratorium period.
The sooner you pay back the loan, the more you save on interest that accumulates on your principal amount. Ask if your lender will charge a penalty on prepayment. Accordingly, you can devise a strategy upon getting a job to repay the loan as soon as you can. Get details on the pre-payment terms and conditions from various lenders to reach a decision.
Loan Processing Time
While applying to foreign universities, meeting deadline is crucial. The loan sanction letter is an important document that is needed to be shown as proof of financial resources at time of university and visa application. It is important to ask the loan processing time of various lenders to help you plan your complete application process accordingly.
Total Cost over EMI
Education loan is repaid in EMIs that are distributed evenly through the loan tenure. Some people prefer longer loan tenures to bring down the amount of the monthly installment. While this may seem convenient in short term, the total cost of your loan will climb higher with each year that is extended on the loan tenure. Go with the lender who offers you the best interest rate during a loan tenure that makes your package cost-effective.
Besides the loan amount, there are many charges that are applicable to your education loan. These include, but are not limited to, loan processing fee, moratorium extension fee, prepayment charges, etc. Ask about all these charges beforehand to make sure there are no surprises.
A large number of banks and financial institutions provide education loans to students aspiring for higher education in India and abroad and each lender offers a diverse set of services and benefits. In addition to taking advice from previous borrowers, it is advised to analyse and compare different products to find one that best suits your unique financial requirements.
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About the Author
HDFC Credila, an HDFC Ltd. Company, is India's First Dedicated Education Loan Company. With specialized focus, in-depth understanding of the requirements of students who wish to pursue higher education, HDFC Credila offers Customized Education Loans Home Delivered! HDFC Credila has funded tens of thousands of students from India to over 2100+ unique educational institutes across 35+ countries!