Understanding Education Loans in India
Education loans in India play a pivotal role in financing the dreams of many students who wish to pursue higher education in international universities. While it depends on the lender, these education loans typically cover:
- Tuition fees
- Examination and library costs
- Cost of books and equipment
- Living expenses, etc.
Some lenders may also cover travel expenses and any costs for additional study materials.
These loans are often given on a collateral basis and are termed secured loans. However, some lenders may also provide collateral-free or unsecured loans. However, they may require a co-signer or co-applicant to approve the education loan. Unsecured loans may incur higher interest rates as compared to secured loans due to higher risk for lenders.
There are multiple lenders in India to procure education loans. Each lender has different terms and conditions and you may choose what fits your requirements well.
Key Terms in Education Loans
While availing of an education loan, it is important and better to understand the related terms to avoid any confusion and to manage the loan better.
Below are some most commonly used terms in relation to education loans:
- Principal Amount: It is the original amount borrowed from the lender. It does not include the interest amount.
- Interest Rates: It is an amount charged on the loan amount for borrowing the money. It can be fixed or variable depending on the terms and conditions agreed upon by the borrower and the lender.
- Collateral: It is security, mostly as an asset, pledged by the borrower. It works as a security for the lender in case the borrower is unable to repay the loan.
- Co-signer/ Co-borrower: It is a person who shares the responsibility of repayment of the loan. Any parent, guardian, or permissible family member can become a co-signer or co-borrower.
- Moratorium Period: It can be explained as a grace period during which there is no repayment of the loan. It generally includes the course duration plus an additional 6/12 months.
Direct Liabilities in Education Loans
In relation to education loans, direct liabilities typically refer to the explicit financial commitment that the borrower has made to the lender to repay the loan. It’s important to understand these direct liabilities before availing of any education loan.
It is agreed upon with the written and signed agreement which requires the borrower to:
- Repay the principal amount borrowed
- Pay the interest on the borrowed amount
- Follow the agreed repayment schedule as per the loan agreement
- Paying any associated fees specified in the agreement
- Meeting any additional charges (like late payment fees), etc.
A loan agreement is a legal contract binding both the borrower and the lender. It is the responsibility of the borrower and the co-borrower, if any to adhere to the specified terms therein.
Read More – HDFC Credila Education Loan: Process, Steps
Indirect Liabilities in Education Loans
Other than the direct liabilities, there can be possible situations that are not necessarily outlined in the contract. It may include:
- The co-borrower or the co-signer assumes responsibility in case the primary borrower fails to repay the direct liabilities.
- Any financial consequences that may arise due to a change in the borrower’s or co-signer’s financial stability.
- Any contingent liability that may arise due to external conditions or events which is not clearly mentioned in the loan agreement.
Indirect liabilities may not pose a direct layer of financial risk associated with the education loans but they come second after the direct liabilities. These obligations may significantly affect the borrower and the co-signer throughout the loan tenure. Hence, it is important to carefully assess these conditions and consider them while getting an education loan.
Managing Liabilities
Whenever you opt for an education loan, it is very crucial that you plan its repayment in advance. Below are some points that can help you with managing your liabilities related to the education loan:
- Understand your Loan Agreement: The loan agreement covers every aspect related to the education loan and the attached liabilities. Always ensure to read the loan agreement carefully and understand every term and condition.
- Plan for Repayment in Advance: You should always be sure about the repayment before even taking the loan. Plan out how you’ll manage the money to meet the direct and indirect liabilities of the education loan.
- Use Professional Help: There are professionals out there who can advise you in relation to managing liabilities. These financial advisors are equipped with strategies that can help you.
Read More – Education Loan for BBA Abroad
Choosing the Right Education Loan
While deciding where you should take education loans, there are some important factors that need to be considered. Have a look at them:
- Interest Rates: Interest rate varies from lender to lender. Always choose the one that suits your financial needs. Also consider the factor that there are fixed and variable interest rates.
- Repayment Terms: Each lender offers different repayment terms. Choose the one that fits right in your financial management.
- Collateral Requirements: Collateral plays an important role in education loans. Check if your lender requires any collateral. And if they don’t, then what’s the interest rate they’re charging?
- Other Loan terms: Other loan terms may include a moratorium period, requirement of a co-signer or co-borrower, etc, which can impact your decision.
Read More – Education Loan Eligibility Criteria
Conclusion
Before you opt for any education loan, it is important to be aware of every terms and conditions attached to it. We understand that getting an education loan can seem difficult but HiWiPay is here to assist you. With HiWiPay, you can get your dream education loan with just one click. Fill out the details and we’ll match your profile with the best lenders out there and they will reach you directly with personalized offers. What are you waiting for? Take the first step towards your dream education with HiWiPay today!
FAQ Liabilities in Education Loans
What are direct indirect liabilities in education loans?
While getting an education loan, the borrower is liable to pay principal and interest amount which is the direct liability for the borrower. While there are certain expenses that are not covered by the education loan, for example, travel expenses or any additional study material. These expenses are included in indirect liabilities.
What types of education loans are available in India?
There are certain bases on which the classification of education loans is done. On the basis of location, there are domestic or study-abroad loans. On the other hand, on the basis of collateral, education loans are classified as secured or unsecured.
What is the role of a cosigner or co-borrower in an education loan?
A co-signer or co-borrower generally applies jointly for an education loan along with the primary borrower. It improves the chances for loan approval as the co-signer or co-borrower is also responsible for the repayment of the loan.
How is the EMI for an education loan calculated?
To calculate the EMI for a loan, use this formula: [P × R × (1+R)^N] / [(1+R)^N-1], Where P is the principal loan amount, R is the interest rate, and N is the number of time periods.
What expenses are typically covered by an education loan in India?
It depends on the lender but generally, an education loan in India covers tuition fees, examination and library fees, the cost of books and study materials, accommodation, and living expenses. Some lenders may also cover additional costs like travel expenses or any other additional study materials.
What are the eligibility criteria for an education loan in India?
To be eligible for an education loan in India, the applicant must typically be of age 18 or above and must be an Indian citizen with a great academic record. Some lenders may require a co-signer or co-applicant as an eligibility criterion.
