Even though interest rates for student loans are not as high, it can still add up quickly if you’re not careful with timely payments and this can land you in debt and spoil your credit record.
New Delhi: Education loan also popularly known as student loan have become extremely popular in the last couple of years. Higher education is becoming costly and more people are choosing to go abroad for higher studies which have contributed to the demand education loans. Education loans have made it easier for students to pursue higher education in Indian and abroad.
Borrowing money to pay for your education is an important decision and you must always consider how quickly you can pay it off. Even though interest rates for student loans are not as high, it can still add up quickly if you’re not careful with timely payments and this can land you in debt and spoil your credit record.
If you planning to get an education, avoid these 5 mistakes at all costs:
1. Borrowing more than you require: Banks and other lenders offer education loans as high as 40 lakhs but just because you can borrow this much money, it does mean that you should. Calculate exactly how much money you need to borrow and get a loan according to that. You must understand that if you borrow more you will have to repay it with interest which is not something you want. If your course costs you 15 lakh, you must calculate boarding and other living expenses and decide your loan amount.
2. Not looking thoroughly: There are several banks, NBFCs and P2P lending platforms which offer education loans and the interest rates on such loans vary from lender to lender. If you fail to do your research properly, you might miss out on getting a loan at a lower interest rate. So, shop around for the lowest interest and do not just settle for the first available option. Compare interest rate and other charges to make sure that you end up with least repayment amount.
3. Wrong repayment plan: Most lenders offer different repayment options to students. Students can either choose the payment plan with the lowest monthly payment or they can choose the highest payment they can afford. Most students pick the lowest payment options but, what they don’t realise that the payment plan with the lowest monthly payment also has the longest repayment term, which increases the total interest. If possible always go for the highest possible payment that you can afford in order to lower your overall payment amount.
4. Other expenses: Students must know that education loan is to furnish education which means that the loan amount must be used for college fee and textbooks. When you get an education loan, try to make sure that the amount is used for educational purposes. Try to fund your living expenses by earning through a part-time job or other savings. This will help lower your education loan amount and in turn, will lower the debt you owe.
5. Read the fine print: Before getting an education loan, students must read the fine print of the document. Students must go through the details of the expenses that will be covered under the loan. Since many students lack experience in handling personal financial matters, they end up borrowing expensive loans to only later find that not much is covered under the loan. This adds to their financial burden. Always read the fine print to make sure that if you are buying an expensive students loan, it covers college fee, textbook, boarding etc.