Kartik
REPAYMENT OF EDUCATION LOAN
Kartik Bhardwaj 20 Mar 2020

REPAYMENT OF EDUCATION LOAN

Quality education is a must for a complete and successful life. For many, it is equivalent to graduating from a top institution. With opportunities growing across the globe, more and more Indian students are aspiring to study abroad at various universities. The cost of education is, however, increasing rapidly. In fact, the cost of studying at reputed institutions is already quite high. Banks in India offers various schemes depending on the institution selected and the course of study. Most education loan schemes come with flexible repayment options and allow the borrower to plan their finances accordingly.

 Types of Education Loans:

Ø Secured Loans ­– A loan given out by a financial institution wherein an asset is used as collateral for the loan. The bank or financial institution will hold on to the ownership deed of the asset until the loan is paid off. Secured loans are provided by government banks like SBI, Punjab National Bank, IDBI etc.

Ø Unsecured Loans ­– Like the name suggests, it is a loan that is not secured by collateral such as land, gold, etc. These loans are comparatively riskier to a lender and therefore associated with a high interest rate. NBFC’s like HDFC CREDiLa, TATA Capital, Avanse Financial etc. provide unsecured loans.

Repayment period offered by government banks, providing secured loans is 7-15 years. Whereas, NBFC’s provide unsecured loans with a repayment period of 10 years. Repayment period usually varies depending upon the financial institutions and their rules.


PAY BEFORE YOU HAVE TO:

Education loans carry a moratorium or loan holiday which is very beneficial for the borrower. It is usually the duration of the course, plus 1 year after the course, or 6 months after being employed, whichever is earlier. During this period you do not have to make payments on your loan, but interest will accumulate throughout this period. You are allowed to pay off the interest during the moratorium period. This will help lessen the burden of the loan. It will also make the loan cost less when you finally have to start paying your EMIs.

TAX BENEFITS:

You can avail tax benefits under Section 80E of the Income Tax Act, 1961 on the interest you pay on your educational loan. To be eligible for this deduction, your loan should be taken from an Indian scheduled bank or a gazetted financial institution. The deductions are available only for initial assessment years and 7 years after, or till you pay off all the interest. Maximum deduction period is capped for 8 years.

EDUCATION LOAN SUBSIDY:

One of the major factors of availing a government bank education loan has been the education loan subsidy which is applicable to the interest rates of government bank education loans. The government of India had introduced three very important education loan interest subsidy schemes which allow students belonging to certain communities to claim an exemption on their education loan interest payment. The terms and conditions to avail this provision is different for each of these education loan interest subsidy schemes.

The education loan subsidy 2020 is applicable to the following schemes:

1.    The Central Sector Interest Subsidy Scheme (CSIS)

2.    The Padho Pardesh Scheme of Interest Subsidy for Abroad Education Loans.

3.    The Dr. Ambedkar Central Scheme of Interest Subsidy on Education Loans for Other Backward Classes and Economically Backward Classes.

This benefit can only be availed by students who have borrowed a government bank education loan to support their higher studies.

CHOOSING YOUR BANK:

A number of banks offer educational loans for different courses in India and abroad. They offer unsecured loans for small amounts. Security is required for loans that are required to fund expensive courses. Choose a bank that will provide you with the best moratorium period, interest rate and terms to pay back the loan. Also make sure you have the option of repaying the loan early. Choose the bank that offers you the best loan terms rather than the most finance. Also check if you are allowed to pay EMIs in advance or make part payments towards the loan. Know about processing fees that are applicable on your loan. Here are some examples of banks that offer education loan with good interest rates and other services.

 

·     STATE BANK OF INDIA:

Loan Amount Offered: 20lakhs – 1.5Crore

Interest Rate: 10.20% p.a.

Repayment period is 15 years after course period + 12 months of loan holiday. Repayment will commence one year after completion of course and loan should be repaid in 15 years after the commencement of repayment.

Processing Charges for loans up to Rs.20 lakhs: NIL whereas, when the loan is above Rs.20 lakhs processing charges is Rs.10000 (plus taxes)

 

·     AXIS BANK:

Loan Amount Offered: 50,000 – 5Crore

Interest Rate: 0.75% of differential loan amount above 20 lakhs + GST (Non Refundable).

Repayment Tenure: Repayment period is given on loans starting from 12 months – 240 months i.e. 20 years.

Processing Charges for loans up to 20 lakhs is Rs.15000 + GST (Refundable Fee)

 

·     HDFC BANK:

Loan Amount Offered: For students who have secured the admission it is up to 20 lakhs for studies overseas.

Interest Rate: 9% - 14.1%

Repayment Tenure: Up to 15 years.

Processing Charges up to 1.5% of the sanctioned amount plus any tax.

 

·     CANARA BANK (UDAAN):

Loan Amount Offered: For Education Overseas Canara Bank Udaan scheme offers Up to Rs.20lakh.

Interest Rate: If the loan amount is less than 4lakhs, no interest will be levied. If it is more than 4 lakhs then the interest rate is 15%

Repayment Tenure: Starts a year after the course is completed or six months after landing a job, whichever is earlier.
Loan with interest can be repaid in EMIs i.e. you can take 10 years to repay your loan amount up to Rs.7.5 lakhs and 15 years if the amount is more than that.

 

·      PUNJAB NATIONAL BANK:

Punjab National Banks offers different schemes for education loans such as:
PNB SARASWATI – To provide financial support to meritorious students for pursuing higher education in India.

PNB PRATIBHA – To provide financial support to meritorious students who get admission in Premier Institutes in India.

PNB UDAAN – To provide financial support to meritorious students for pursuing higher education abroad.

Repayment Tenure: Maximum Up to 15 years.

Repayment Holiday (Moratorium Period): Course Period + 1 Year

Interest Rates:

·      Loan for pursuing education from premier foreign universities and educational institutes under PNB Udaan scheme up to 7.50 lakh covered under CGFSEL: MCLR + 0.60%

·      Loans irrespective of amount (where 100% Tangible collateral security in the shape of IP, enforceable under SARFAESI Act, and/or liquid security is available): MCLR + 1.10%.

(Where MCLR is Marginal Cost of funds based Lending Rate)

Processing Charges: Rs.250/- + GST

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