The covid-19 pandemic has affected finances of many households. In these tough times, instead of looking for alternative college options, students can use education loan to fund the shortfall. Before taking such a loan, here are a few things that you should keep in mind.
There must be a co-applicant for an education loan. Lenders, usually, don’t offer such loans to students alone. Typically, for loan amounts up to ₹4 lakh, lenders will not ask for any collateral. For loan amount between ₹4 lakh and ₹7.5 lakh, lenders can ask for collateral if it feels that the co-applicant’s income is insufficient. For higher loan amounts, most lenders would require the co-applicant to offer collateral.
For taking an education loan, you should have a letter confirming your admission to a course. Without confirmation, lenders will not offer a loan. It can cover tuition fees, hostel, books, and in some cases even computers.
Some lenders may have defined limits on the maximum loan it can offer for specific courses. For example, the limits will be higher for post-graduate courses than undergraduate studies or prestigious institutions like the Indian Institute of Technology and the Indian Institute of Management.
The interest rate can vary from as low as 6.85% to as high as 15.2%, according to data from Paisabazaar.com. Government banks offer better than private lenders. The processing fee on education loan is usually low, 1-2%. Some lenders don’t even charge it. The maximum tenure can vary from one lender to another. The interest portion of the education loan for self, spouse or children is available for deduction under Section 80E.
Before approaching a lender, apply for admission to the course and college of your choice, understand the fee structure, and check how much you can pay from your pocket. Approach a lender only to bridge the shortfall.