Understand the loan. Before applying for education loan it is very important to understand the student/course eligibility criteria and the aspects, which the loan covers to complete the education. Eligibility criteria for students demand him to be an Indian national and loans are granted to pursue graduation courses (B.A., B.Sc. etc.), post-graduation courses (MBA, PHD etc.), professional courses (Engineering, Medical etc.) and various other types of courses. Besides tuition fee of the course the loan covers all the expenses payable to college viz. examination/hostel/library fee, purchase of books/equipments, caution/refundable deposits, insurance cover, travel expenses/passage money for studies abroad and other expenses required to complete the course.
Be confident for targeted college Consider it as mandatory to be sure about the standing of the college you are planning to join. You must check out the history of performance regarding placements of the concerned college, in case, it is not a very renowned institute, and you have to be very realistic in approach while joining because if you don’t achieve good financial standing after completion of the course, the debt will convert to an unsustainable burden.
First exhaust all of your other resources It’s important for you to borrow only as much as you actually need, so your loan amount can be as less as possible. Do not apply for full amount in haste. First try to collect all of your possible resources then find out how much more is required. This will help you to keep your principal and interest amount lower and you will gain the benefit of this exercise while repayment process.
Consider the advantages and disadvantages of loan Undoubtedly education loan helps in paving way to successful educational qualification and financial independence, but only if chosen and applied wisely. There is a darker side of the loan also, which, generally, is not visible to the loaner while applying for the loan. Disadvantages of the loan, if not considered in the beginning only, can lead the borrower to a traumatic situation during repayment. It is advisable to go through the disclosures again and again until all the terms and conditions become transparent to borrower.
Confirm about the grace period Different loans have different grace periods i.e. how long you can wait after leaving school before you have to make your first payment. Make yourself aware with the grace period very clearly because you must start repayment as scheduled or else bank will start imposing delayed payment charges and in worst cases loan can go for default also. Also check with the bank authorities on the possible flexibility by bank for further deferment of loan in case you are not able to start repayment on scheduled time. You must be left with some scope of postponement of repayment process in order to avoid extra charges and other troubles.
Pick up the right repayment option if available- Few of the banks provide the facility to choose options for repayment. Consider all the possible factors that can affect payment schedule and then decide on the scheme as well as repayment option.
Know the repayment process- The borrower must be completely aware of different ways to pay back the loan. Cautiously decide on payment process viz. payment through check, payment directly to same bank or payment through some other bank, as banks apply different service charges for different modes of payment. Remember, if you start with the job abroad, you will not be present physically to pay back. For such instances familiarity with different procedures of repayment is must.
Be sure about work-outs and cancellations – The most important task in entire loaning process is to work-out the actual loan amount i.e. calculation of interest rate/E.M.I/processing fee and calculation of other extra charges. Usually while opting for the loan applicants concentrate only on principal and interest to reach repayment amount, whereas borrower has to pay many other charges, which are generally underestimated or not clarified by bank authorities. In rare cases due to some unavoidable circumstances borrower is forced to cancel the loan. Although the knowledge of cancellation procedure is never useful to majority of the candidates but, considering the worst situation in mind, it is in your favor if you confirm the procedure with bank while applying for the loan itself.
Aware of Pre-payment fees of loan – It is always better to get rid of the debts as soon as possible but banks impose extra charges for pre-closure of the loan. Some percentage of outstanding balance is charged incase of loan takeover. If the bank allows and you can afford to pay more if not full, then pay off. This way you can lower your principle, which in turn will lower your amount of interest also.
Ask questions- Ask as many questions from bank authorities as you want. Never hesitate to clarify your doubts because today’s doubts can prove to be very troublesome tomorrow. Few sample questions to ask about student loan are mentioned below:>
- What is the lowest interest rate and fee combination that you can offer?
- Is the rate applicable to only a limited period (an introductory rate), or for the entire duration of the loan?
- What are the fixed and floating interest rates?
- Is there any penalty on paying off loan early?
- When will I have to start repayment?
- Can bank provide some extra time to start with repayment if required?