InvestorQ : What are the factors one must consider when planning to take an education loan?
Gauravi Patel made post

What are the factors one must consider when planning to take an education loan?

Swapnil Sarang answered.
2 years ago

An education loan is not only an easy way to finance your higher education, especially if you’re going abroad for your future studies, but also a means of saving tax.

If an individual has taken an education loan and is repaying the same, then the interest paid on that education loan is allowed as a deduction from the total income under Section80E.

Please note, the deduction is provided only for the interest part of the EMI and there’s no tax benefit for the principal amount of the EMI.

There are a number of factors one must bear in mind when planning to take an education loan. According PersonalFN, a few of these factors are:

1. List of eligible institutes When you approach a bank for an education loan, first check if the university/institute is accredited by the Ministry of HRD and administered by the Ministry of Tourism. Moreover, is the university/institute eligible for Central Government’s Interest Subsidy Scheme.

2. Interest rate The interest rate determines your EMI and has a bearing on your budget and long-term financial wellbeing. So, make sure you’re availing a loan with a competitive rate of interest. It makes sense to compare interest rates across lenders.

3. The charges levied Most banks, do not levy a processing fee for an education loan. However, you need to keep an eye on other charges such as prepayment charges, late payment charges, penal interest, and so on. Please note, some banks do not penalise you for prepayments; but for late payments interest @2% per month (i.e. 24% p.a.) is levied on overdue instalments. Further for a PDC bounce, Rs 500 plus applicable GST (Goods & Service Tax), per instance. Hence, ensure your interest payments are paid on time, and if possible prepay your loan.

4. Loan Tenure The maximum tenure for an education loan is usually 5-7 years (including moratorium period). However, as per the guidelines the loan tenure can be extended up to 10 years for loans up to Rs 7.5 lakh, and 15 years for a loan amount above Rs 7.5 lakh. Remember, a higher tenure can reduce the your EMIs, making repayments comfortable; while opting for a lower tenure increases your EMI.

5. Customer service Ensure the customer service at the lender has high standards. This service can even help keep track of your loan and be in better control of your personal finances. Remember, while lenders may have varying customer service standards, there are some basics of good service that are universal. The customer service among a few banks is transparent and well-co-ordinated and they respect the relationship with their clients.

6. Terms & conditions Take the time to read the terms & condition carefully, so that you make an informed choice. This will avoid issues later and ensure a pleasant, hassle-free experience.