Unrestricted access to good education can open the door of opportunities for your child. That said, one cannot oversee the rising cost of higher education, both in India and overseas. A far-sighted step that you can take in such a scenario is to find the right education loan so that you don’t drain your savings while financing your child’s education. Besides covering the course fees, an education loan offers a lump sum that can help you pay for accommodation, tuition fees and other associated expenses like travel, books, and more. Most lenders and financial institutions provide an education loan specially designed for professional courses, making it the most convenient financing option available.
Irrespective of the course your child wishes to enrol for, make note of your financial obligations before proceeding further.
What you should look for when taking an education loan?
To make the most of the loan without disrupting your financial health, here’s what you need to look for.
Collateral requirement: Education loans are usually collateral-free up to a limit, usually Rs.7.50 lakh. However, this financing via an education loan for abroad studies may be insufficient to meet your requirements. To get a high-value education loan that can cover course fees and related expenses, you may need to pledge an asset as a security. Called an Education Loan on Property, this is a mortgage loan or loan against property that gives you an ample amount based on the property’s market value. Consider the pros and cons of each type of education loan based on the sum you require.
Interest rate: The applicable rate of interest determines the EMIs payable on an education loan. To make repayment stress-free, look for a lender that offers an affordable interest rate. Research and compare these before you make a decision.
Eligibility criteria: Mostly importantly, check the education loan eligibility terms of your shortlisted lender. Most education loans require the child to be the applicant with the parent/guardian as the co-applicant. However, this is different when it comes to education loans on property. The criteria also differ in terms of age, income, and other factors like a credit score. To get hassle-free approval on your education loan, only apply after you check and meet these criteria.
Processing fees: Before you finalise a lender, do not miss on checking the education loan processing fees that will be charged to you. The loan amount disbursed to you will be an amount that is left over after deducting this fee, so it is best to be informed beforehand and prevent unpleasant surprises later. The processing fee is usually a percentage of the loan amount and differs from lender to lender. While checking this, also make note of the other related charges on the loan and make sure to account for them when planning repayment.
Repayment options: While education loans usually come with a moratorium period, a gap after which you may begin repayment, other loans such as loans against property have different terms. Check the tenures and other terms to plan your repayment better. The best way to do this is to use an education loan calculator.
Benefits of an education loan EMI calculator
An education loan EMI calculator is a handy online tool that can help you choose the most affordable loan as well as other terms accordingly to your income and obligations. Moreover, it provides you with quick and error-free results. To generate your EMIs, all you need to enter is the principal amount, rate of interest and preferred repayment tenure. You can also try varying combinations until you arrive at the EMIs that best suits your repayment capability.
Although you can calculate the EMIs online, the formula isn’t complicated.
EMI = [P x R x (1 + R) ^ n] / [(1 + R) ^ n – 1]
P = Principal amount
R = Rate of interest
N = loan tenure
You can either choose a longer tenure to make your EMIs smaller or opt for a shorter period to reduce your overall interest payment. Some lenders also offer part-prepayment options which you can make use of when you have excess funds to become debt-free faster.
Now that you know how an education loan can help your child pursue their dreams, choose one that fits all the requirements. Don’t forget to use an education loan calculator to customize your EMIs to suit your budget. A well-informed decision will help you manage the loan and your financial health comfortably!