If you are also facing problems with your loan, you can take these measures that will help you prevent a default on the loan.
Education costs over the years have been on the rise, be it for higher education or secondary education. To finance them, nowadays most people opt for an education loan. However, maintaining a loan is not always easy. Similar to other types of loans, an education loan default ruins your credit score. Not only for the student but even for the parent or guarantor, defaulting on loan effects their credit score and also effects their loan and credit eligibility. It also reduces the borrower’s chances of availing loans in the future. Industry experts suggest, if you are facing difficulty while paying the EMIs, you can opt for various options such as rescheduling your education loan, or transferring balance or changing the lender.
If you are also facing problems with your loan, you can take these measures that will help you prevent a default on the loan:
Rescheduling the Loan: Rescheduling an education loan means extending the time of the loan. If the bank approves your request, you get an extended tenure to pay off the loan. However, the extension of the tenure of the loan period also comes with a price. The total interest payout also goes up with the increased tenor of the education loan, hence the loan becomes more expensive. Some banks and NBFCs also levy a penalty or additional charges for delay in payment and rescheduling of the loan.
Changing lender: You can switch from your current lender or consider transferring the balance to another financial institution that offers a lower interest rate on your education loan. Experts suggest, in case of an unsecured loan one can even consider converting their existing education loan into a secured loan. With a secured loan the EMI and the interest outgo come down. Before allowing balance transfer, the new lenders take into account your track record of repayment history. Hence one should ensure that they don’t delay or miss any payment. While transferring the balance or changing lender, the borrower additionally needs to pay charges. Such as various service charges, documentation charge, and processing fee of around 2 per cent of the transferred loan amount is charged.
Stepping up the repayment plan: When you take an education loan, the repayment period starts with bigger EMIs which gradually decreases over the repayment tenure. However, in case of a step-up repayment plan, in the initial phase, you get to pay smaller EMIs which then increases over the tenure. This method offers the borrower enough time to increase their cash flow. Experts suggest borrowers who have recently got a job or are in a financial crisis should opt for this. It also helps people to raise their creditworthiness as a borrower, as the EMI outgoes are small.
Deferring the Payment: With deferring the payment, you can pause the outgo of your EMIs for a few months. Also known as the EMI holiday, borrowers can request their lenders to allow payment deferring. You can opt for this option if you are expecting a lump sum in the near future, or with this brief pause, you can also stabilize your financial conditions. Many banks and financial institutes add charges and penalties on deferring payments. Hence, make sure to check all with your bank.