8 Things to Consider When Choosing the Best Education Loan Option

8 Things to Consider When Choosing the Best Education Loan Option

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8 Things to Consider When Choosing the Best Education Loan Option

Are you a student with dreams of attending your desired college or pursuing higher education at prestigious universities, even if they are far from your home? The ever-increasing expenses of education, aggravated by soaring education inflation, can make this dream feel like an uphill battle. When financial constraints loom, reconsidering your options becomes inevitable. In such circumstances, an education loan may appear as a convenient remedy.

As per data from the Reserve Bank of India, the education loan portfolio witnessed an impressive 17% surge in the fiscal year 2022-23, resulting in a substantial increase of around Rs 14,000 crore in just one year. This indicates a rising dependence on education loans in India for funding educational pursuits. Nevertheless, given that this choice entails a commitment to repayment under particular terms and conditions, it is essential to approach it with prudence.

If you are considering applying for an education loan, there are several factors you should be aware of to make an informed financing decision. When you apply for education loans in India, here’s what you should consider:

1. Eligibility Check

To begin, it is critical to understand the eligibility criteria for an education loan in India. While the specifics may differ amongst lenders, the basic requirements are often the same. The lender will consider factors such as your credit score, income, existing debts, and age. 

It’s also important to understand that not all courses, costs, or colleges or universities are eligible for student loans. It is advisable to speak with the lender directly to learn more about the programs, costs, and academic institutions that a specific lender provides loans for.

2. Pick A Course With The Highest Job Security

Before deciding on an education loan, it’s crucial to investigate whether the course you intend to pursue provides early job prospects. Nobody wants to invest money without the expectation of earning it back. Taking an education loan is essentially an investment and opting for a course with limited job opportunities can lead to unfavorable outcomes. It’s vital to select a course that offers the highest possible Return on Investment (ROI). This choice will enable you to repay your loan sooner and prevent financial strain.

3. Determine the Loan Amount

Before applying for the best education loan, your initial step should involve determining the amount you need to borrow. Develop a comprehensive plan, detailing all your expenses and the necessary financial support. If you can cover at least half of the expenses from your own funds, you’ll only need to secure a loan for the remaining half. This approach can significantly alleviate the burden of your loan. 

While there isn’t a strict rule in this regard, creating a well-defined plan will provide you with a precise understanding of the required amount to finance your education. This clarity will streamline the process of applying for a loan with the most suitable bank or financial institution, ensuring a hassle-free experience.

4. Education Loan Interest Rate

The immediate costs that a student must face are Education loan interest rates and processing fees. Education loan interest rates are generally determined by the type of course, university, and academic record. Interest rates are also affected by a variety of criteria such as credit rating, collateral, and so on. 

As a result, students should work on improving their credit score before applying for a loan to acquire the best interest rate feasible. A few leading banks in India offer Education Loans starting at a low of 6-7% per year. Consider such lenders to ensure that the loan is convenient as well as reasonable.

Also Read: How to Get the Best Interest Rates on Your Student Loan in 2022

5. Tax Advantages

Section 80E of the Income Tax Act allows you to deduct the interest you pay on your school loan. To be eligible for this deduction, your loan must be obtained from an Indian-scheduled bank or a gazetted financial institution. The deductions are only possible for the initial assessment years and for the next seven years, or until you pay off all the interest, whichever comes first. As a result, the maximum tax deductibility period is eight years. Choosing a lengthier loan entails receiving the tax break just for the first eight years.

6. Loan Repayment

When applying for an education loan in India, this becomes a prudent choice. While researching various banks, it’s essential to delve into their loan repayment terms. Opting for a longer repayment period allows you to make fewer EMIs, offering the advantage of maintaining a balanced monthly budget without exceeding it. However, if you have the financial means to repay your loan quickly, selecting a shorter loan term might be preferable. Opting for a loan with a shorter repayment duration also leads to potential cost savings.

7. Loan Tenure

Typically, Indian banks provide student loans for a maximum of 8 years for unsecured loans (without collateral) and up to 10 years for secured loans (with collateral). Additionally, there’s usually a grace period of approximately six months after you finish your course, during which you’re only required to pay the loan’s interest component. However, it’s essential to note that this grace period can differ from one lender to another.

8. Secured or Unsecured Option

When comparing education loans effectively, it’s crucial to decide between a secured or unsecured loan. Both options are typically available for student loans. Opting for a secured loan means you’ll need to provide collateral, such as your home, as security for the loan amount. It’s essential to make this decision before applying, as it can greatly influence factors like the interest rate, loan amount, and loan duration.

Also Read: Step-by-Step Guide: Securing an Unsecured Education Loan in India

When you’re in the process of applying for an education loan, it’s crucial to remember the factors we discussed earlier. It’s a good practice to carefully go through the terms and conditions provided by the lender before finalizing your decision. Keep in mind that specific requirements may differ from one lender to another, so it’s essential to be well-prepared with all the necessary documentation before submitting your loan application.

While there are numerous lenders offering education loans in India, finding the best one can be a daunting task. Varthana is dedicated to assisting students like you by providing financial support to ensure your educational journey is as seamless as possible. When you apply for education loans, remember to consider the factors we’ve discussed, and apply with confidence to pave the way for your academic dreams.  Apply for your Student Loan Now