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5 things to know before applying for an Education Loan

RBL Bank Aug 07, 2020

Powered by TransUnion CIBIL

As per data from TransUnion CIBIL, there was a considerable rise in the average ticket size of a new education loan from 2015 to 2018. It went up from INR 5.73 lakhs to INR 8.5 lakhs- a 48% increase. The cost of education in India as well as abroad has been rising perpetually. With the dollar rising against the rupee, a foreign education seems like a dream. But parents always dream big for their children. Since the institute matters in advancing their children’s careers, parents often turn to education loans to ensure the best for their kids.

If you are also going to need an education loan for your children sooner or later, here are some important things to know.

1. Always compare and analyse:

Never settle for the first offer you find appealing. Take your time and go through multiple loan providers and their details before choosing one. Everyone has unique financial needs. Nowadays, there are numerous sites which can make your online research process much easier with rate comparison tools, etc. In fact, even the government’s Pradhan Mantri Vidya Lakshmi scheme offers a Vidya Lakshmi portal where you can go through loans, apply and track them as well. This way, you can pick the rate and the repayment facility that suits you the best.

2. Know what the loan provider is asking for:

Depending on the amount required, a loan provider or bank can provide 100% of your loan. According to RBI rules, self-financing is required for loans upto INR 4 lakhs. For higher education in India, 5% of the cost should be self-financed. For a degree abroad, it is 15%. If your requirement is less than INR 4 lakhs, you won’t need to provide a guarantee. For requirements between INR 4 lakhs and INR 7.5 lakhs, a guarantor is needed. For loan amounts of more than INR 7.5 lakhs, you need to put up some kind of property as collateral, for recovery in case you fail to repay the loan.

3. A good credit score is essential:

A parent or guardian is the common choice to act as guarantors for their child’s education loans. When the child does not have a credit history and credit score, the lender asks a family member or friend to guarantee the loan. In either case, the guarantor must maintain a good credit score, or the loan application might get rejected. A credit score of 750+ can even help the student to acquire their loan at a better rate.

4. Plan for repayment already:

Some students receive a moratorium of a year before they are liable to start repaying their loan amount. This means that they have a grace period of a year. Whether the grace period is applied or not, interest on the loan is accrued from the first month itself. While your child takes a year to get ready to repay, you can start saving and helping your child to get rid of the loan faster.

5. Added benefits:

Under Section 80E of the Income Tax Act, you can claim a tax deduction on the entire interest amount of your education loan. Apart from this, an education loan also helps the student in starting their credit history with a good record as it is mostly the first loan they avail in their lives.

If you plan your child’s education loan well, both you and your child will be able to maintain a good credit profile. With the above points in mind, you need not worry about the road to your child’s dream education.

Click here to check your latest CIBIL Score for free.

Disclaimer: Articles published on the website are merely indicative and suggestive in nature and do not amount to solicitation. The contents do not guarantee the desired returns and/or results. Reader is advised to exercise discretion and consult independent advisors for achieving desired result. Visitors to this blog/ website w.r.t products & services offered by RBL Bank Limited herein, shall ensure that the comments / feedback posted shall be restricted to the contents published herein and shall not contain such language that may be un-parliamentary or against any religion, caste, section of society, political view etc. While our endeavor is to publish the comments that are submitted, however, all comments/feedback shall be subject to internal review by RBL Bank Limited. We do not guarantee that the comments that are submitted will be published.

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