Opting for a personal loan to meet additional expenses is completely fine as long as one does not violate any terms of the existing loan agreement.
Quality education often comes with a price that is surging rapidly with the passage of time. In such a scenario, educational loans become the support system for individuals unable to afford such high expenses. Hence, most students seeking quality education end up with a student loan.
However, experts say, many times, the sanctioned loan amount is not enough to cover the cost of expenses.
Ankit Mehra, Co-founder and CEO, Gyandhan, says, “Students, particularly those looking for financing overseas education, wonder if they can avail of two education loans from different lenders at the same time. Some even wonder whether they can opt for a personal loan on top of their education loan to meet short-term expenses. While there is nothing on paper that necessarily prohibits them from taking two education loans, lenders typically are not keen on extending an education loan if the student has an existing one.”
Also, keep in mind, for tax benefits, only one loan can be classified as an education loan.
Industry experts say opting for a personal loan to meet additional expenses is completely fine as long as one does not violate any terms of the existing loan agreement. A borrower might even have to sign an affidavit stating other debt obligations on the borrower or may have to inform the lender of any additional loans that he/she may take or have taken.
Mehra adds, “If the borrower makes false statements on either of these fronts, the loan could be cancelled and the borrower could face other penalties as well. The key here is to communicate the correct information.”
Note that, banks also consider the fixed obligations to income ratio (FOIR) when considering personal loan applications. The ideal FOIR for personal loans is between 40-50 per cent. In simple terms, the fixed monthly obligations of the borrower should not be more than 40-50 per cent of one’s total monthly income.
With a large majority of programs going online due to the pandemic, experts say students are now enrolling in online programs and short-term courses and looking for educational loans to fund these. Mehra says, “Traditional lenders in India have largely stayed away from funding these online programs and short-term courses. In such cases, NBFCs and emerging fintech players like GyanDhan are carving out a niche for themselves by offering zero per cent EMI loans.”
An education loan certainly has made higher education – within India and abroad – within the reach of thousands of Indian students who were hitherto unable to fund their higher education. Experts say it is important that students understand all the nuances of the education loan on offer before signing up for the same.