In my previous blog I talked all about the availability of educational loans and how it works.This blog will focus on how to plan the payment of those educational loans in a more economic manner.In India the need of educational loan has risen as the colleges have started charging more tuition fees and cost of living has risen.Anyone from a middle class family who wants to get quality education, in India or abroad, will most likely need an educational loan.
As people in India as a whole have become credit savvy and are all up for taking a loan they still need to learn to pay back on time.Having a credit card doesn’t mean you can buy all you like and needn’t pay for it……the longer you keep your dues the larger amount you have to pay back!! This is what people forget and then eventually drown in debt.
The situation is same in the field of educational loans which is shown by the increase of Non-Performing Assets (N.P.A.s).While taking an educational loan you should make sure that you can earn enough to pay back the loan at the end of the moratorium period .Their might be unforeseen events that might make you unable to get employment right after graduation or post-graduation so making sure that your parents can pay at least the interest if not the whole amount would be a great idea.
The repayment if the loan usually starts after the completion of the education for which the loan was taken but usually banks have a moratorium period which is a permit from the lender to delay the payment.The period usually last somewhere in between 6 months to 1 year and after that the payment for the loan starts even if you are still employed.The banks usually charge simple interest on the whole duration while others may charge only for the duration of the education.The policies varies from bank to bank.
In general the delay of payment means that the cash outflow will be larger.So you should try to start payment as soon as you get a job .If you start to earn a huge sum it would be a good idea to partly prepay the loan before the moratorium period.Most banks don’t charge the prepayment penalty while others do Livy it or may put a time limit before which they can’t repay their loans.You should check the terms of agreement before borrowing.
In case of summer internships it would be worth exploring the option of partly payment of principal during their internship if they are getting stipend.For example if you borrow ₹6 lakh as an educational loan for 2 years at an interest rate of 13% and you have to start payment after the end of moratorium period with a tenure of 4 years.The bank will disperse ₹3 lakh in the 1st year and another ₹3 lakh in the second year.You would have to pay back with an interest of ₹1,17,000.Lets say you get lucky and get a stipend of ₹40000 per month for two months in a MNC company during the first year than if you prepay ₹80,000.Then the interest will come down to ₹1,06,600 as he has already paid back ₹80,000.If your parents have a surplus amount you can use that amount as well rather than just relying on a summer internship or a part-time job.
You should start the payment of educational loan as early as possible to ensure that you have a good credit rating and you save on the payment of interest as well.Educational loan is a very good idea if you can get a job after completion of the course and can hence achieve all your career goals in life.Reading the terms and conditions and clauses and doing research on the interest rates charged by the banks would prove to be very helpful in the long run.