Important Factors to Consider When Applying for an Education Loan

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financial planning, financial planning smart advice, child education deductions, child planning, financial planning, financial planning smart advice, education loan, study abroad, education inflation, study abroad costs, currency depreciation, investment discipline , long-term investment, higher education, ETF, digital lending platforms, digital lending, education of borrowers, solvency, lending agreement, digital lending app, personal loan, instant loan, instant loan providers, instant loan, lending apps, digital lending platform, Covid-19 pandemic, personal loan interest rates, personal loan fees, eligibility for personal loans, HDFC for personal loans, SBI for personal loans, loan offers, solvency, credit rating,Processing fees are another very important factor to consider when comparing education loan products. You should also check for other fees, including late fees, prepayment fees, and other hidden fees.

The price of quality education often rises rapidly over time. For example, an MBA from ISB, which used to cost around 26 lakhs in 2016, has skyrocketed to 40 lakhs in 2021 – a 65 percent increase in just 5 years. Foreign education is no exception. In such a scenario, educational loans become a support system for students who cannot afford such astronomical expenses.

How should you fund your higher education?

The education loan options available for study in India and abroad can be divided according to the type of loan and the lender. Lenders can be divided into four parts – public sector banks, private banks, NBFC and alternative lenders such as Prodigy Finance and GyanDhan, while loan types are broadly divided into two groups – secured loans (loan with collateral) and unsecured loans (loan without collateral). pledge).

Public sector banks such as SBI, Bank of Baroda, National Bank of Punjab dominate the education lending market. Lower interest rates, longer maturity periods, no maturity during the study period, and tax breaks are some of the factors that make loans from public sector banks attractive. Banks only require collateral for loans exceeding 7.5 lakhs. Students seeking loans for admission to top educational institutions in India can obtain unsecured loans for higher loan amounts at low rates, starting at 6.75% in the case of Bank of Baroda. Experts say public sector banks should be preferred when studying abroad if the applicant can provide collateral.

Ankit Mehra, Founder and CEO of Gyandhan, says: “In case someone does not have collateral to offer and requirements exceed 7.5 lakhs, unsecured loans from private banks such as Axis Bank or ICICI Bankmay be the next choice. NBFCs usually charge the highest interest rate on loans and are last in order of preference for education loans. ”

He also adds: “For context, if someone plans to continue their studies abroad, interest rates on secured loans from public sector banks start at 7.75 percent, compared to the lowest interest rate offered by NBFC, which usually starts at 10. 25 percent. cent “

Factors to Consider When Applying for an Education Loan

Experts say some of the factors to consider when choosing a suitable lender are the nature of the interest rate (floating or fixed), other fees, margin money, ease of processing, and the flexibility of the loan terms offered.

Mehra says: “The fixed interest rate allows the borrower to repay the loan with fixed payments according to the maturity of the loan, while the floating interest rate is tied to the base rate offered by the lender and can change over the life of the loan. It becomes critical when interest rates peak in any cycle. “

Processing fees are another very important factor to consider when comparing education loan products. You should also check for other fees, including late fees, prepayment fees, and other hidden fees.

Mehra also adds: “The annual interest rate is commonly used to compare two loans with different interest rates and commissions. It gives the total cost of funds, including fees, rather than simply comparing the interest rate, which can be misleading. Consider two scenarios: Lender A offers a three-year loan at 11 percent with no handling fees, whereas Lender B offers the same loan at 10 percent but charges a 2 percent upfront fee. In this case, the second loan is more expensive because the total amount paid in the second case of Rs 118,232 will be higher than in the first case – Rs 117,946, provided that the loan amount was 1 lakh. ”

Another important aspect to consider is cash margin. Margin money is part of the total costs that you will have to pay yourself while the bank pays the rest. Banks such as SBI charge 10 percent margin on their Global Ed-Vantage scheme, while Bank of Baroda, under its Baroda Scholar Scheme for Study Abroad, does not charge margin money for admissions to institutions from list of leading institutions.

“NBFCs have an edge over banks and the private sector over public sector banks when it comes to ease of processing and offering specialized lending terms. When it comes to loan processing, NBFCs deliver significantly faster turnaround times, ”says Mehra.

NBFC can also serve cases that do not fit into the bank’s policy, although this comes at the expense of a higher interest rate. Note, however, that public sector banks start at 7.75 percent, compared to the lowest interest rate offered by NBFC, which usually starts at 10.25 percent.

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