How to Choose Your Bank for Education Loan to Study Abroad
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To cover the expenses of studying abroad, students borrow education loans from banks and NBFCs. You must select the right education loan scheme with the conditions that suit you. Research different banks and compare their interest rates, and understand different fees & moratorium periods.
Education loan plays a pivotal role in the lives of meritorious students who aspire to study at a premier institute but lack the required financial resources. With an education loan, it has become easier for parents to fund the dreams of their children to study abroad. Competitive interest rates, longer moratorium periods and flexible repayment terms help the students to take responsibility for their higher education.
Many education loan providers in India offer financial support to students aiming for higher education in India and abroad. However, the set of features and benefits related with such loan schemes varies from one lender to another. The interest rates, processing fees, moratorium period, prepayment terms, tax benefits, repayment tenure and conditions vary largely among banks.
Important Factors to Consider Before Choosing a Bank for Education Loan
- Interest Rate: Interest rate remains the most important factor to be considered while selecting the best bank for an education loan, since even a small difference can help you save a significant amount of money.
- Tax Benefits: Education loans taken from scheduled Indian banks and gazetted financial institutions are eligible for tax deductions on the interest part of the loan under Section 80E of the Income Tax Act of India, 1961.
- Eligibility for Study Loan: Most banks and financial institutions have an evaluation process to determine your eligibility for offering loan. The process includes a thorough review of your academic background, creditworthiness, co-applicant details, family income, etc.
- Education Loan Documents: It is also advised to get the list of required documents for an education loan from the bank to give you ample time to collect it. Most banks usually ask for address proofs, a copy of mark sheets of previous education and entrance exams, passport-size photos, co-applicants' income proof, etc.
- Costs Covered: The amount of education loan disbursed depends on a lot of factors like academic background, the reputation of the college/university, the co-applicant’s credit history etc. While some banks cover the complete cost of education, some banks cover only a part of it.
- Moratorium Extension: Lending banks and financial institutions give a grace period of six months to one year after the completion of the course before the prepayment starts which is known as the moratorium. This is done to give students time to acquire a job and gain financial stability before they begin to repay their education loans.
- Prepayment Terms: The sooner you pay back the loan, the more you save on interest that accumulates on your principal amount. Ask if your lender will charge a penalty on prepayment. Accordingly, you can devise a strategy for getting a job to repay the loan as soon as you can. Get details on the pre-payment terms and conditions from various lenders to reach a decision. Check tips to know how to repay student loans faster.
- Loan Processing Time: While applying to foreign universities, meeting deadline is crucial. The loan sanction letter is an important document that is needed to be shown as proof of financial resources at time of university and Student visa application. It is important to ask the loan processing time of various lenders to help you plan your complete application process accordingly.
- Total Cost over EMI: Education loan is repaid in EMIs that are distributed evenly through the loan tenure. Some people prefer longer loan tenures to bring down the amount of the monthly installment. While this may seem convenient in short term, the total cost of your loan will climb higher with each year that is extended on the loan tenure. Use the Education loan calculator to understand your EMI for study loan.
- Service Charges: Besides the loan amount, there are many charges that are applicable to your education loan. These include, but are not limited to, loan processing fee, moratorium extension fee, prepayment charges, etc. Ask about all these charges beforehand to make sure there are no surprises.
A large number of banks and financial institutions provide education loans to students aspiring for higher education in India and abroad and each lender offers a diverse set of services and benefits. In addition to taking advice from previous borrowers, it is advised to analyse and compare different products to find one that best suits your unique financial requirements.
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