By Rajesh Panda
The importance of a sound education is key to every student achieving their aspirations. With everything going digital in the last few years, people directed their attention toward educating themselves in full-fledged online courses. While education loans provide respite to students for a brighter future and add to their employability, a certain scepticism clouds a prospective borrower’s judgement. Here are some myth-busting facts about availing of education loans that will clarify doubts and help individuals plan their financial needs accordingly.
A heavy debt to begin with
The biggest concern for many students is the extra baggage of an education loan debt. Higher education, upskilling, certified courses, or any vocational course that will make one employable and future-ready should be considered as an investment rather than a loan. However, one needs to ensure that the selected professional course does have the potential to result in career advancement and personal enhancement.
No collaterals, No loan
Any applicant who does not have any collateral need not worry. The next best alternative would be to go for an unsecured loan in case of the unavailability of collateral. However, in such cases, students may need a co-applicant with a good credit history to apply for a loan without collateral. Do note that the co-applicant’s employment background and reputation will be examined before considering the education loan.
Lack of loan products for up-skilling/ vocational courses
Several education loans for various courses are available in the market. Many lenders offer financing options for courses that appeal to students seeking coaching and upskilling/ vocational certification programs to grow their professional life. Regulated NBFCs identify the needs and offer customized and optimized loans that help students fund their education ambitions without worrying about substantial debt burdens.
Education loans vs Personal savings
Self-financing an education loan is one way of not going through the tedious loan approval route. It’s a good option only if it’s meticulously thought out and planned. However, it is advisable if one’s financial reserves are not pulled out of emergency funds or by liquidating assets. Contingency or personal funds should be otherwise used to strengthen any financial situation that may occur in the future. With an education loan, there is time on one’s side with additional tax benefits.
Past education records
Many feel that not having an above-average academic record will lead to loans not getting approved. Banks & financial institutions review applicants’ past marks, credits, and achievements, along with the type of college or educational institution, course, and the student’s future earning potential before approving the loan. So, students with an average academic record are not left in the lurch while seeking education loans.
Low-interest rate is crucial when deciding on an education loan; however, one should consider the loan tenor. This will impact the student’s monthly outlay and repayment options. Consider a partner that offers better borrower protection and variable rate loan options.
Timelines for repayment of the loans
The ideal loan repayment time depends on the financial situation and planning. A moratorium period of 6 months to a year is allotted to allow students to sort out their finances for loan repayments. Interest is charged during this period, which is later added to the principal. Applicants should note that interest is charged as soon as the funds are disbursed, so plan accordingly to avoid unnecessary financial burdens. While working professionals can set aside a part of their salary towards loan payments, helping to repay the loans quicker.
Education loans don’t impact the credit score
Like credit cards and mortgage payments, education loans also impact the credit score. Any delay in payments will also affect the credit score. Consistency in repayment proves one is a dependable borrower, increasing one’s credit score and qualifying the applicant for better loan rates. Ensure a complete understanding of repayment terms and read all relevant documents carefully.
Refinancing only when unable to pay loans
Defaulting on loans is one of the biggest concerns of any borrower as it negatively impacts the credit score. However, refinancing can help reduce the financial burden and restructure the existing loan. This can be done to get a better interest rate with favourable terms and conditions, extend the loan repayment period, and transfer from secured to unsecured loans and vice versa.
Nowadays, loan seekers are spoilt for choice with several loan products available in the market. However, determining the most suitable and optimum product for an education loan requires thorough due diligence, research, and time. Consulting with an industry expert, comparing products, and planning one’s finances will be the right way to move forward. And a word of advice to follow, do not fall prey to myths leading to financial issues.
The author of this article is co-founder, director, Techfino Capital Private Limited. Views expressed are personal.