The A to Z of Study Abroad Loans: All Terms and Their Definitions
The financial terminologies and jargon in Education Loan-related documents can be overwhelming for those not well acquainted with the same. Knowledge of these terms not only helps you better understand your loan documents, and the terms & conditions but also prevents you from signing for something you didn’t agree to. It helps you become aware of the product you are being offered and the many advantages and disadvantages of the education loan you are applying for.
It is imperative for Education Loan aspirants to spend some time understanding these terms in detail to be able to analyze and compare education loans offered by different banks and financial institutions to make an informed choice.
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Study Abroad Loan Terms & Definitions
Below is a list of common terms associated with education loans that an applicant must be aware of:
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1) Principal Amount – It is the actual loan amount taken by the borrower.
2) Interest Amount – It is the interest paid on the principal amount of the loan as per the rate of interest. The interest accumulates till the end of the moratorium period, i.e. till the time repayment of the loan begins. The amount repaid to the bank at the end of the loan tenure is the sum of the principal and interest amount.
3) ROI (Rate of Interest) – It is the rate at which the interest amount is calculated. It can be of two types – Fixed and Floating.
4) Fixed ROI – In this case, the EMIs amount is fixed as the interest rate agreed upon in the loan agreement does not change during the tenure of the loan.
5) Floating ROI – In this case, the amount of EMI is not pre-determined since ROI changes with the increase or decrease in interest rates in the market.
6) Tax Rebate – Education Loans taken from gazetted banks and financial institutions are eligible for deductions on the interest part of the education loan under Section 80E of the Income Tax Act of India, 1961. Deductions can be claimed for 8 consecutive years including the year in which the loan is taken in. Any Indian individual can claim deductions on the interest part of the education loan availed for self, spouse, children or any other child of whom the individual is a legal guardian.
7) Margin Money – It is part of the education cost that has to be borne by the borrower while the rest is paid by the bank.
8) Processing Fee – It is a one-time loan processing fee charged by lending banks and financial institutions and can vary.
9) Collateral – Any asset, tangible or intangible, that is pledged again the loan is known as collateral security. Types of collateral may vary but mostly include residential property, fixed deposit, non-agricultural land and life insurance.
10) Co-borrower/Co-applicant – The co-borrower acts as a guarantor and can be a parent, legal guardian or spouse (if married) of the applicant. He/she must have a steady source of income and a good credit history in order for the loan to get approved. Brother, sister, maternal/paternal uncle, and aunty can be additional co-borrower.
11) Moratorium Period – This is the period during which the borrower is not required to make any repayments towards the loan. EMIs usually begin at the end of the moratorium period. This period usually lasts from six months to one year after the completion of the course the applicant has enrolled in. Some banks refer to this period as the Grace Period.
12) Default – Default is the inability to repay the loan according to the terms and conditions agreed upon at the time of loan approval and may lead to legal action.
13) Disbursement – This is the payment made by the bank or financial institution to the applicant’s college/university/institute as a fee. The disbursement details are discussed in advance to decide the mode of payment to the University for Tuition Fee and to the applicant for other expenses (living, books, computer etc.) covered in the cost of education.
14) Cost of Education – Cost of Education includes tuition fees, exam and library fees, travel fare for foreign education, cost of books and uniforms, living expenses in a foreign country, and any other cost the lender deems necessary for the completion of the course. While some banks may cover 100% of the cost of education in the loan amount, some banks only cover a part of it.
15) Credit Worthiness – A valuation of your profile and credit history performed by the lending bank or financial institution to determine your loan eligibility and ability to repay the loan.
16) EMI (Equated Monthly Instalment) – EMI is the monthly amount paid to the bank towards repayment of the loan and begins once the moratorium period is over.
17) Repayment Schedule – The repayment schedule is a detailed document outlining the date of commencement of repayment, the amount of principal and interest paid with each EMI, the mode of payment, and the number of EMIs to be paid till the end of the loan tenure.
18) Tenure – The loan tenure is the period from the date of first disbursement to the date when the last EMI is made and the loan is fully repaid.
Education Loan is an investment for your future and must be ventured into with awareness and caution. It is recommended to familiarize oneself with all terms related to education loans and their meanings to save yourself from complications in the later stages.
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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!
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4 years ago
All this article very usefull for students
Reply to Dhanashri Rode