Thursday, 29 September 2011

Education loan – Think before educational Loan

Almost all banks offer education loan with attractive terms and conditions. They offer money for professional studies and higher studies. Students and parents can depend on this loan to get any professional degree. The repayment of loan should be started only after a fixed term such as one year or more and the term is considered as the period of getting a job after study. But is this education loan is helpful or harmful for the students and parents?

Payment of Interest from the beginning of Loan

Most of the banks allow a time span to start the loan repayment. But banks ask you to pay the interest from the starting of the loan itself and it will be a liability for the parents to pay back the loan interest soon after getting the loan. They are not ready to wait till the student get job to repay the interest part. The interest rate is also not low. The interest rate of education loan of a leading nationalized bank is as follows:- ( as on August 2011)

Education loan upto Rs.4 lacs the Interest rate is 13.75%

Above 4 Lakh but below 7.5 lackh the interest rate is 15.25%

Above 7.5 Lakh the interest rate is 14.25%

The parents should pay the interest, as per the above mentioned rate or according to the terms of the loan, from the very beginning of the loan. If the interest could not paid in time the banks may stop any further release of the loan amount and study may be discontinued due to the non availability of loan amount.

Repayment of Loan amount after specified term

The repayment of the principal loan amount should be started after one year of completing the course. Even if the student did not get a good job within one year of completing the course, he or she will be compelled to do any job which is not according to his/her qualification, to repay the loan amount.

Security is required for educational loan

Banks should ensure the repayment of loan. For this purpose they will ask any surety from the parents. The surety must be a mortgage of any property or personal surety. If the loan could not be paid back in time the mortgaged property may be taken over by the bank or the person who give surety must pay the amount. This is a normal procedure for any bank loan. But the student or parents should be ready to give any such security for getting the loan.

Investment experts may say to take an educational loan than paying the education expenses from the investments already hold by the parents such as Provident fund, pension fund etc. The reason is that the parents should suffer after their retirement and the students will be more responsible at the beginning of their employment, if they have to repay the loan amount. Think twice before taking an educational loan.

But we advise you if you have money, do not go for an educational loan. You can avoid the above mentioned problems and the hefty procedures for taking an educational loan. But better to take an educational loan than discontinued the study due to lack of fund.

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