A lender might not explicitly explain some of the things to a borrower unless asked. These are key points, however, must be overlooked by the borrowers as their money will be saved in the long run.
Parents should never forget that the most crucial financial task that one should never ignore is saving for their child\’s future. They must start this procedure as soon as possible. Higher education requires high costs.
Moreover, the requirement for an education loan makes parents choose this approach typically. Students can apply for loans at a public or private bank. They can also apply to a non-banking financial company. However, there are 4 key factors that lenders won\’t disclose regarding your education loan. This might put you in trouble financially, offering you financial instability.
Funding higher education has become a difficult task with the rising cost of education, for most students. Student loans are the best option to finance higher studies unless parents have built a considerable amount of funds beforehand.
Loan seekers must be aware of the intricacies of student loans. However, a lender might not disclose this factor to their customers. Some points are highlighted below that borrowers must look out for when an education loan is being applied for.
Credit History and Credit Score
Credit history gives us a record of the financial habits of the borrower. It demonstrates repaying debts and regarding other financial information. A credit score is assigned based on these habits to the borrower.
The credit history and credit score are used by the lenders in order to determine the terms of the loan for the borrower and the interest rate. If there appears to be any delinquency, default, delay or loan settlement, it affects the chance of a better loan deal for a borrower negatively. Also, loans that are ongoing also impact the borrower\’s credit score.
Charges that affect the loan cost
A borrower incurs certain changes when applying for an education loan. These changes are informed to the borrower beforehand when they apply for the loan. However, the borrower might not find the extent of its impact clear to them.
For every student loan, processing fees are a standard charge. A fixed amount is charged by the public banks. This fee is lower than the fee charged by private banks and Non-Banking Financial companies. Property evaluation charges are paid by the borrowers in secured education loans along with the lawyer’s fees.
Tax benefits
Students who have already taken an education loan are already aware of the burdens regarding interest payments. In order to reduce the burden of interest payments, students can apply for various government schemes and tax benefits.
Padho Pardesh, Central Sector Scheme of Interest Subsidy and Dr Ambedkar Central Sector Scheme are a few schemes launched by the government. Under Section 80E of the Income Tax Act of India, students should also explore tax benefits. Students who apply for a loan from a select few lenders, mainly public sector banks can only avail of a tax benefit under Section 80E.
Type of interest rate available
Two types of interest rates are available on taking a loan
- A floating rate of interest
- A fixed rate of interest.
According to economic conditions, a floating interest rate changes periodically. However, throughout the loan tenure, a fixed interest rate remains the same. Each type of loan has its own advantages and disadvantages.
With market conditions, a floating interest rate changes. Thus, it benefits the borrower when the revision in the rate might lower the rates. However, it leads to an increase in the EMI when borrowers witness an interest rate hike.
There is no change when it comes to a fixed rate of interest. Thus, the borrower is not impacted by any increase or decrease in the rate. From an increase in monthly instalments, the borrower is protected if there is an increase in the rates. However, they also do not benefit when the interest rates are decreased.
A lender might not explicitly explain some of the things to a borrower unless asked. These are key points, however, must be overlooked by the borrowers as their money will be saved in the long run.
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