8 Mistakes You Should Avoid While Applying for Student Loan

8 Mistakes You Should Avoid While Applying for Student Loan

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8 Mistakes You Should Avoid While Applying for Student Loan

Education is deeply ingrained in the fabric of Indian culture, and it’s no secret that securing a bright future for their children is a top priority for most Indian parents. As students complete their secondary education, the natural next step is pursuing higher education to open doors to better opportunities and prospects.

According to a report shared in February 2023 by the Ministry of Finance with the Parliament of India, in the past decade, there has been a 215% increase in the number of students who have taken education loans.

However, the rising costs of education have become a pressing concern. The expenses associated with higher education, whether in India or abroad, require meticulous financial planning. This is where the option of an education loan comes into play, offering relief to both parents and students. For many students, taking out an education loan is their first experience with borrowing. 

This underscores the importance of making well-informed decisions when it comes to understanding and managing this debt. Education loans come with numerous benefits, but to make the most of them, it’s crucial to be well-informed and avoid common mistakes that could lead to unnecessary financial strain. Here, we offer you guidance on what to steer clear of when considering an education loan.

Also Read: How To Apply For Student Loan Online In India

1. Not Researching Enough

When you’re contemplating the idea of applying for an education loan, your initial step should involve in-depth research. Take the time to explore the options available, consult with friends, family, and individuals who have navigated this path, and seek clarity. After accumulating this valuable information, it’s crucial to draw comparisons between the various financial institutions that extend education loans. Failing to make these comparisons might lead to missing out on securing a more favorable financial arrangement when you apply for student loans.

2. Interest Rates Aren’t Everything

While interest rates often take the spotlight, they’re not the sole consideration when seeking an education loan. Look beyond just the interest rate and evaluate other crucial factors. Check out loan schemes, processing fees, coverage of all educational costs, processing speed, repayment flexibility, and collateral requirements. Weigh all these aspects alongside the interest rate to make an informed decision.

These days, parents recognize the many benefits of education loans, and they’re encouraging their children to explore this option. Opting for an education loan not only fosters financial independence but also makes your parents proud. It’s a step towards financial responsibility, teaching you the value of money and helping you build a strong credit score through timely repayments.

3. Limiting your loan applications to banks and overlooking student loan NBFCs/Fintechs

Don’t restrict yourself to just applying for loans from banks. It’s important to consider both specialized education loan providers and traditional banks when you apply for student loans. This will not only simplify the process but also lower the risk of possible rejection by banks or their slower processing times. Students often have tight schedules to follow, and any delays in loan approval can create challenges.

4. Avoid Overborrowing

When you apply for student loans, exercise caution not to take on more debt than you require. Although loans can be a valuable resource for covering your educational expenses, it’s a good practice to refrain from borrowing excess money. You might want to consider exploring part-time job opportunities to help with your day-to-day expenses. The idea behind this is quite simple: borrowing less now means having less to repay in the future, including interest. Additionally, it’s important to plan for your future by researching the average salaries in your chosen field. This information can be valuable in helping you estimate how much you can comfortably manage in terms of monthly loan payments as you progress in your career.

5. Avoiding Last-Minute Rush

When it comes to education loans, rushing can lead to costly errors. Some banks offer quick processing in about five days but with higher interest rates (around 10% to 14%). On the other hand, banks with lower rates (around 6% to 7%) take longer for loan processing.

There are two main types of education loans: collateralized loans that require assets like a house, flat, or land, which takes time, and non-collateral loans that need a strong co-applicant with a stable income source.

A common mistake is waiting until the last minute and then accepting offers from private lenders with much higher interest rates. Even a small 0.5% difference in ROI can make a big impact. Start your loan process early to secure favorable terms and avoid a last-minute scramble. Start your loan process early to secure favorable terms and avoid a last-minute scramble. Apply for student loans wisely.

6. Overlooking the Loan Agreement Details

A significant error many applicants make is blindly accepting a loan without thoroughly reading and comprehending the fine print. This is a serious mistake. If you or your co-borrower find the financial jargon confusing, it’s essential to seek professional advice. Consult a family member with expertise in these matters or consider investing in a professional’s guidance to decode the intricacies of the loan document. Only proceed when you have a clear understanding. This precaution can spare you from potential complications in the future arising from unfamiliarity with the loan’s specifics.

Also Read: What Is The Biggest Problem With Student Loans And How To Solve Them?

7. Opting for the Incorrect Repayment Options

A common mistake students often make is selecting a repayment plan solely based on the lowest monthly installment, instead of considering what they can comfortably afford. However, it’s essential to understand that the plan with the lowest monthly payment also tends to have the longest repayment period. This can significantly raise the overall interest amount and the total sum you’ll eventually repay.

In the Indian context, this means that when choosing an education loan repayment plan, it’s crucial to find a balance between affordable monthly payments and a reasonable repayment period. Going for the lowest possible monthly installment might seem attractive initially, but it can lead to substantially higher costs over the life of the loan. It’s prudent to consider your financial capacity and the long-term implications of your choice.

8. Honesty Matters on Your Loan Application

Being truthful when you fill out your education loan application is essential. Whether it’s about your income or your family’s, providing accurate information is not only good practice but necessary. Some institutions thoroughly review financial aid applications, and dishonesty can lead to severe consequences.

If caught, you may lose your loan, face financial penalties, or even more serious legal charges like fraud, which can result in imprisonment. So, stay honest on your application to avoid these complications and maintain your integrity.

When you decide to apply for student loans in India, it marks a significant step towards achieving your educational aspirations. To make well-informed financial decisions, it’s crucial to steer clear of common mistakes such as inadequate research, overlooking eligibility criteria, overborrowing, misunderstanding interest rates, and ignoring repayment plans.

Keep in mind that your student loan’s impact on your financial future is long-lasting, so approaching the process with care and responsibility is essential. By avoiding these pitfalls, you can pave the way for a successful and debt-free future post-graduation.

Varthana offers tailored education loan options designed for students pursuing higher education. These loans not only cover tuition fees but also additional expenses like books, equipment, and other educational costs. For further guidance on applying for a student loan online, you can explore Varthana’s resources.

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