10 Education Loan / Student Loan Terms You Should Know About

10 Education Loan / Student Loan Terms You Should Know About

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10 Education Loan / Student Loan Terms You Should Know About

Many people want to pursue higher education, but rising school prices can be a huge barrier. Education loans or student loans save the day in these circumstances by offering the required financial assistance.

The disbursement of education loans has risen from Rs 16,000 crore in the fiscal year 2021-22 to Rs 17,000 crore in 2022-23, according to information presented in the Lok Sabha. The discussion highlighted an increase in the amount of education loans provided to the youth in India.

For students, an education loan is a medium- to short-term loan that gives them the money they need to pay for the tuition at the university or other institution they want to attend. Furthermore, education loans for studies have assisted many students in realizing their dream of studying.

However, it is critical to grasp the varied education loan terms in India. We hope to shed some light on some crucial student loan terminology. This understanding is vital for you to make well-informed decisions regarding your loan, considering the specific education loan terms and conditions

Also Read: 8 Things to Consider When Choosing the Best Education Loan Option

10 Major Education /Student Loan Terms You Need To Know

Here are some of the most common educational loan words you will encounter while applying for an education loan in India.  

1. Moratorium Period

The moratorium period, also known as the repayment holiday, is a time when the borrower is not compelled to return the loan. The moratorium period lasts the duration of the course plus one year.

While no repayments are required during this time, interest may accumulate. When the moratorium period expires, the repayment schedule begins. Understanding this period is crucial when navigating the education loan terms and conditions of education loans.

2. Collateral

A collateral asset or property is one that a borrower promises to the lender as security for the loan amount. The right of the lender to seize the collateral exists in the event of default or nonpayment of the loan.

Collateral might take the shape of real estate, fixed deposits, or other valuable assets. Although collateral is not required for all student loan terms, having it may result in lower interest rates.

3. Cosigner or co-borrower

A cosigner, co-borrower, or co-applicant is someone who files for an education loan terms and conditions alongside the primary borrower, who is usually a parent or guardian. The cosigner bears equal responsibility for debt repayment and financial liabilities.

A cosigner with a consistent income and a strong credit history might help to enhance the loan application and increase the chances of approval.

4. Sanction Letter

A sanction letter is an official document produced by the lender that confirms the loan’s approval. Aside from other education loan terms and conditions, it includes crucial information about the loan amount, interest rate, and payback schedule. Legal documentation between the borrower and the lender is the sanction letter.

5. Variable Interest Rate:

When you opt for a variable interest rate, also known as a floating interest rate, remember that it can fluctuate during your loan repayment period. This rate is usually tied to a benchmark, like the MCLR (Marginal Cost of Funds-based Lending Rate) or the Repo Rate. Changes in this benchmark can lead to variations in your interest rate, impacting both your EMI amount and the duration of the loan repayment.

Also Read : How Student Loan Interest Rates Are Calculated

6. Grace Period:

Your grace period, which spans up to 12 months after completing your course, gives you a break from making any loan repayments. During this time, you can focus on securing employment or making necessary arrangements before entering the repayment phase. Whether interest accrues during this grace period depends on the specific education loan terms and conditions of your loan.

7. Annual Percentage Rate (APR):

Now, the Annual Percentage Rate (APR) is crucial. It represents the total cost of borrowing, expressed as an annualized percentage. This encompasses not only the interest rate but also any associated charges or fees. Understanding the APR provides you with a comprehensive view of the overall cost of the loan, helping you compare loan offers from different lenders.

8. Margin Money:

When you’re securing an education loan, you’ll come across margin money, also known as a down payment or contribution. This is the share of the total education expenses that you, as the borrower, need to cover. The lender steps in to handle the remaining amount through the education loan. Keep in mind that the margin money requirement can differ among lenders and loan products, usually presented as a percentage of the total expenses.

9. Loan Tenure:

Now, as you go through the loan process, the loan tenure is crucial. This student loan term refers to how long you, as the borrower, have to repay the education loan. It typically spans a few years after the moratorium period concludes. The exact duration of the loan tenure can vary, influenced by factors such as the loan amount, interest rate, and your preferences as the borrower.

Opting for a longer loan tenure means lower monthly installments but comes with the trade-off of higher overall interest payments.

10. CIBIL Score: Your CIBIL score is a brief three-digit overview of your credit history. It reflects your past credit activities, particularly how well you’ve repaid loans you took before. Lending institutions use this score to evaluate your creditworthiness when you apply for a loan. For those seeking an unsecured education loan, maintaining a positive CIBIL score is crucial.

Taking that essential first step towards achieving your educational goals might involve securing an education loan, especially if you’re pursuing higher education.

Understanding the key terminology associated with school loans in India is crucial for you. It empowers you to make informed decisions, allowing you to select the best lender and acquire loans with favorable terms and conditions.  

Consider the aforementioned variables when looking for an education loan. Before choosing a loan, always completely examine the terms and conditions. Take note of the specific requirements, as they may differ amongst lenders. Making sure you have all of the relevant papers ready before applying is critical for a smooth loan application procedure.

Education loans are accessible from many lenders, but locating the best loan providers in India can be difficult. Varthana is motivated to provide financial aid to students like you to make your educational journey as smooth as possible. Varthana education loans are carefully designed to cover the numerous costs associated with your study. Varthana has personalized solutions for you whether you need loans without collateral, want collateral-backed options for larger projects, or want to explore varied collateral possibilities. Enjoy the flexibility of EMI options that meet your financial circumstances. Also, after submitting your documents, you should be able to observe how quickly and efficiently the loan is processed in 5-7 working days. Varthana is dedicated to assisting your educational path by providing specialized and effective financial solutions. Apply Now!