4 Mistakes to Avoid while Taking an Education Loan
Higher education is pretty expensive, especially if you’re looking for an overseas education or a premium institution in the country. Undoubtedly, higher education loans are a boon for students as well as parents. For students, it helps to realize their dreams. Whereas for parents, it serves to reduce the financial burden.
Education loans are categorized as a priority loan along with home loans. The government of India believes that no student should be denied the right to an education loan if he/she meets the required parameters. However, in spite of the numerous benefits of a higher studies loan, people still end up making costly mistakes when applying for an education loan online or at a bank.
Here are the four common mistakes people make when it comes to repaying education loans. Be aware and stay free from these.
Mistake #1: The Failure to Capitalize on Provisions
Students get many relaxations when it comes to education loans. Make use of these to have a smooth and easy repayment. Banks reduce the margin money for deserving students. So, try to secure good grades in college and use it to contribute to reducing the expense fee.
Women students can avail a further reduction in the costs by 0.5%. Additionally, banks have concessions for differently-abled and students from weak economic conditions. Check for these provisions when you apply for an education loan.
Also, if possible, do not avail the entire loan amount in one go. Instead, claim it in installments to reduce the interest you pay.
Mistake #2: Not Utilizing the Moratorium Period
Repayment of education loans doesn’t begin immediately after graduation. Students enjoy a period of six months to one year during which they aren’t required to start repaying. This period is called as the Moratorium period.
Make use of this time to build a corpus fund. This fund can then be used to pay EMIs regularly or for partial repayment.
Another option is to repay a part of the interest while you’re still in college. The bank charges interest right from the day you get the education loan. So, if you repay the interest while in college, your EMIs get reduced significantly.
Mistake #3: Prepaying without considering the Implications
While it’s commendable that you want to finish off the loan as early as possible, you must consider the implications. Most education loans have a penalty for prepayment. Do a cost-benefit analysis on your own or with the help of a financial expert and then take the right decision.
Mistake #4: Not Factoring the Rate Fluctuations
The interest rate for an education loan varies from bank to bank. Also, remember that education loans are floating rate loans. So, if you have spare cash after paying the current EMI and meeting your other expenses, then use it create an emergency fund, which will be helpful in the case of an increase in interest rates.
Financial experts advise that you must maintain a sufficient emergency fund, which equals at least three installments. This is essential to ensure that your EMI continues unhampered even if interest rates increase in the future.
Be wary of these four mistakes and repay your student education loans on time!
