Education costs in India are rising by the day. In fact, in many courses, the fees charged by colleges can run into tens of lakhs and even crores of rupees. While some people start saving up for their children’s education from the time they have kids, most people find it difficult to save a fixed amount religiously for years for this. This leads to the need for significant funds when the time for higher education arrives. One of the best options at such a time is an education loan.
An education loan is meant to finance the cost of education of a student irrespective of the location. It might even be used to finance education in international institutions. Unlike a regular loan where the repayment starts in a matter of one or two months, an education loan is meant to be repaid once the student has completed their education and has started earning. By its very nature, an education loan may seem like an unsecured debt but it requires parents to sign as co-borrowers and can be securitised by pledges of bullion, property, stock or FDs or financial instruments.
Courses and Universities Covered: This is the most basic aspect of taking an education loan; you must check which courses and universities are covered. For premier institutes such as IITs, IIITs, IIMs IISc and other top professional institutions, getting a loan will be a breeze, but only after your admission is confirmed.
These institutions are expensive but the chances of getting a very high paying job once you have passed out from them are also very high. This is why education loans here are a done deal. For other government and private institutions, you will need to check with the lender.
Now, if your college or course is not covered by a traditional lender or if you need a stopgap loan, you can explore the option of an instant education loan from an app. These are faster than the loans by traditional lenders and also cast a wider net of institutional coverage.
Process and Paperwork Involved: The very nature of an education loan is such that there is a lot of paperwork involved in it. You will have to check with the lender about what are the pre-application and post-application paperwork involved.
Generally, you will need to provide documents detailing educational records such as marksheets and certificates of 10th and 12th standards. Documents of graduate and post-graduate degrees will also be needed as applicable. In addition to your KYC documents, you must also submit seat confirmation documents of the educational institution where admission is sought. On the co-borrower/guarantor side, KYC documents will be needed, along with income proof and documents of assets being pledged, or mortgaged.
Interest Rates for the Loan: The interest rate is perhaps the single most important thing to consider when taking a loan. It is always best to get loans with fixed interest rates because they are predictable in both repayment period and repayment amount.
You are aware that you have to pay a certain amount of money to the lender every month as the EMI and this has to be done for the entire duration of the loan. It brings discipline and predictability to your cash outflow and allows you to plan your monthly finances better. Plus, as you grow in your career and you get more disposable income, you can also start setting aside some money for future EMIs or early payment of the loan.
Types of Expenses Covered: Education loans are restrictive in types of expenses that you can make from the borrowed amount. They usually cover the institution’s fees, books, stationery supplies, cost of other reading materials etc. Many education loans also offer college hostel expenses. While several education loans availed through a loan app allow you to track the eligible expenses, they are rather restrictive in the spending eligibility aspects. If you are taking an instant education loan from an app, you will find that many financial institutions are not as restrictive. The advantage of app education loans is that they allow more expense types.
Repayment Modes and Duration: Finally, it is very important to check the available repayment modes and duration. The loan should be flexible in the repayment terms, particularly the duration and modes of payment. Here are some factors to consider:
· First, it should be possible to reduce the period of loan by increasing your EMI amount as you grow in your career.
· Second, it is important to be allowed to make partial payments on your education loan. For example, upon receiving a bonus or variable pay from your job, you should be allowed to pre-pay part of the loan principal with low or no fees.
· Third, it should also be possible to completely pay off your loan in advance if you gain a windfall income of any kind or if any of your investments strikes it big.
All in all, an education loan is a very good way to finance the higher education of the next generation but borrowers must be very careful in taking the loan and disciplined in repayments.