Know these things before taking education loan

Ankit Mehra, founder and chief executive of GyanDhan, an edu fintech company, said, “The most important step in planning for one. education loan The program is sure and the colleges are well worth the investment. Applying for an education loan is a huge and lengthy commitment and should not be taken just because it is available. A general education loan tenure ranges from around five years to seven years and requires timely repayment to maintain a perfect CIBIL score.”

Pre-planning: How to plan for taking an education loan

If you choose a course that does not assure employment, applying for a loan is not a financially prudent decision. Once you have selected the right course and college, make a list of estimated expenses. When applying for education loan to study in India, factor in the tuition fee, living expenses and purchase of equipment. If the loan is to finance education abroad, there may be additional costs such as travel expenses and health insurance.

After ascertaining the estimated costs, select a lender that best meets the student’s financial needs. Compare offers from different lenders, different types of loans (secured and unsecured education loans) and different loan products. Depending on whether the borrower is pledging collateral or not, the loan amount, interest rate and processing fee may vary.

Mehra further added, “Low interest rates and processing charges bring down the loan cost. Application of a borrower with a good CIBIL score, impeccable credit history is bound to get better terms and interest rates. Another factor which What can help reduce the cost is to apply for the amount after a thorough analysis of the expected starting salary.Students should study the job market and keep their salary expectations as realistic as possible to ensure that They do not take more loans than required. This is an essential factor in loan repayment.”

Since the future earning capacity of the students determines their repayment capacity, they must take into account the above details wisely while evaluating the loan amount.

After Planning: How to Plan the Repayment of the Loan

Often, when you repay the education loan, you opt for a longer term loan to keep the Equated Monthly Installments (EMIs) low. While this may seem like a practical decision, it effectively increases the total cost of the loan. Apart from this, you should also be aware of the tax benefits of education loan to reduce the loan cost.

As per Section 80E of the Income Tax Act, deduction is allowed on the total interest amount of EMIs paid during the financial year for a maximum period of 8 years. In addition, you will need to obtain a certificate from the bank. The principal and interest amount of the education loan paid during the financial year should be mentioned separately in that certificate. The reason behind this is that no deduction is allowed on the repaid amount of principal.

These tax benefits are not available on loans from every lender, making it imperative for students to do their due diligence. BankBazaar.com CEO Adil Shetty said that tax deduction from your loan is helpful. But one should not be captivated by this nor should one increase the loan to maximize such deduction. The deduction on education loan is for payment of interest. Unlike other deductions like ELSS (Equity Linked Savings Scheme) or PPF (Public Provident Fund) the money is not coming back to you.

Your strategy should be simple: Get debt-free as soon as possible, especially if you’re paying a high interest rate.

“Conversely, if your loan rate is very low, you may consider taking a slightly longer route for repayment, not necessarily for tax deduction, but for lowering your EMIs and working your way up to investments and wealth creation. To free up income at a relatively high price. In any case, you should repay your loan in a manner that suits your finances without straining your ability to meet other needs like paying rent,” Shetty said. said.