Quality education has become a cornerstone of success. However, the cost of pursuing higher education, especially at renowned institutions, can be substantial. This is where an education loan comes into play\u2014a financial tool that empowers students to achieve their academic dreams without worrying about immediate financial constraints. If you’re new to the concept of education loans or considering applying for one, this blog is for you. Let\u2019s break down what an education loan is, its benefits, and how it works.<\/p>\n\n\n\n
An education loan is a type of financial aid provided by banks, financial institutions, or government programs to help students cover the cost of their education. This loan typically includes tuition fees, accommodation expenses, study materials, and sometimes even travel costs for studying abroad.<\/p>\n\n\n\n
The primary purpose of an education loan is to bridge the gap between your aspirations and financial limitations. Unlike other types of loans, it often comes with student-friendly features like lower interest rates, flexible repayment options, and a moratorium period.<\/p>\n\n\n\n
Also Read: Planning to pursue MBBS? Check out the details on <\/strong>education loans for MBBS from Russia<\/strong><\/a>.<\/p>\n\n\n\n When applying for an education loan, students and their parents need to understand certain key terms that banks use. Knowing what terms like “interest rate,” “moratorium period,” and “collateral” mean, you can make better-informed decisions about taking out a loan for studying abroad.<\/p>\n\n\n\n Principal Loan Amount<\/strong> Interest Rate<\/strong> Moratorium Period (Repayment Holiday)<\/strong> Repayment Period<\/strong> Collateral<\/strong> Co-applicant<\/strong> Processing Fee<\/strong> Disbursement<\/strong> EMI (Equated Monthly Installment)<\/strong> Also Read: Check here all the details about <\/strong>how to remove NPA from education loans<\/strong><\/a>. Know the effective steps to repay your education loan properly.<\/strong><\/p>\n\n\n\n Education loans in India help students pursue higher studies in India and abroad. Broadly speaking, there are two primary types of education loans: secured and unsecured education loans. Each type has its own set of features, benefits, and eligibility requirements. Understanding these differences will help students make an informed decision.<\/p>\n\n\n\n Secured education loans require the borrower to provide collateral as a guarantee to the bank or financial institution. This could be in the form of property, fixed deposits, or any other valuable asset. The collateral is used to protect the lender in case the borrower is unable to repay the loan.<\/p>\n\n\n\n To qualify for a secured loan, the borrower (usually the parent or guardian) must own the collateral asset, and the value of the collateral must meet or exceed the loan requirement. Check out the key features of secured education loans-<\/p>\n\n\n\n Advantages of Secured Loans:<\/strong><\/p>\n\n\n\n Disadvantages of Secured Loans:<\/strong><\/p>\n\n\n\n Unsecured education loans, as the name suggests, do not require the borrower to pledge any asset or collateral. Instead, the loan is granted based on the creditworthiness of the borrower (usually the student\u2019s parent or guardian), their income, academic record, and the institution they are attending.<\/p>\n\n\n\n Eligibility is determined based on the academic record of the student, the reputation of the educational institution, the creditworthiness of the co-applicant (usually a parent or guardian), and the repayment capacity of the family. Check out the features of education loans without collateral<\/strong><\/a>– <\/p>\n\n\n\n Advantages of Unsecured Loans:<\/strong><\/p>\n\n\n\n Disadvantages of Unsecured Loans:<\/strong><\/p>\n\n\n\n Also Read: Know <\/strong>how exchange rate volatility affects student loans<\/strong><\/a> for international students. Check out the ways to deal with and manage finances wisely.<\/strong><\/p>\n\n\n\n Check out this table to understand the major differences between secured and unsecured education loans<\/strong><\/a>.<\/p>\n\n\n\nTerms Related to Education Loans<\/span><\/h2>\n\n\n\n
The original amount of money borrowed from the bank, before any interest is added. This is the loan amount that the bank gives you for your education, which you will have to pay back, along with interest, over time. For example, if you borrow INR 15 Lakhs, that is the principal loan amount.<\/p>\n\n\n\n
The percentage of the loan amount that the bank charges you as the cost of borrowing money. This is the extra amount you pay in addition to the loan amount. The interest rate is calculated annually and can either be fixed (remains the same throughout the loan) or floating (changes over time depending on market rates).<\/p>\n\n\n\n
The period during which the borrower is not required to make repayments on the loan, usually during study and for a few months after completing the course. During this period, you don\u2019t need to pay anything on the loan. The bank will give you time to complete your studies and find a job. For example, if you study for 2 years, the moratorium period could last for 2 years plus an additional 6 months after your course ends.<\/p>\n\n\n\n
The time given to repay the loan in full after the moratorium period ends. This is the period (usually up to 15 years) in which you need to pay back the loan in monthly instalments (EMIs). The longer the repayment period, the smaller your monthly payments, but you will end up paying more interest over time.<\/p>\n\n\n\n
An asset (like property, a car, or a fixed deposit) that a borrower offers to the bank as security in case they are unable to repay the loan. If the loan amount is more than INR 7.5 Lakhs, the bank may ask for something valuable (like your home or a family property) to be kept as collateral. This gives the bank assurance that they can recover the loan if you can\u2019t pay it back.<\/p>\n\n\n\n
A person (typically a parent or guardian) who agrees to take responsibility for repaying the loan if the primary borrower (the student) is unable to do so. Most banks require a co-applicant, usually a parent, as the bank will want a secondary person to repay the loan if the student cannot. The co-applicant\u2019s financial profile is also checked, as they may need to repay the loan if they fail to do so.<\/p>\n\n\n\n
A non-refundable fee is charged by the bank for processing the loan application. The bank charges a small fee (usually between INR 500 and INR 1,000) for checking and processing your application. This fee is generally deducted from the loan amount, and it\u2019s not refundable even if your loan application is rejected.<\/p>\n\n\n\n
The release of the loan amount to the student or the institution in stages. Once the loan is approved, the bank will release the loan in parts (disbursements). Usually, the bank sends the money directly to the college or university to cover tuition fees, while other expenses like travel and living costs are given to the student.<\/p>\n\n\n\n
The fixed monthly payment that the borrower needs to make to repay the loan, including both principal and interest. After the moratorium period, you need to start repaying the loan in EMIs. For example, if your loan is INR 10 Lakhs, the EMI could be INR 12,000 per month for 10 years, which includes both the loan amount and interest.<\/p>\n\n\n\nTypes of Education Loan in India<\/span><\/h2>\n\n\n\n
Secured Education Loans<\/span><\/h3>\n\n\n\n
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Unsecured Education Loans<\/span><\/h3>\n\n\n\n
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Key Differences Between Secured and Unsecured Education Loans<\/span><\/h3>\n\n\n\n