Education loans: Questions to ask the bank
Editorial Team160|1Last Updated:03:51 pm, June 29, 2012
Many students and parents do not ask enough questions when it comes to selecting the best education loan. Here are some tips on the questions to ask and points to watch out for.
1. Low interest rates do not mean the best education loan
Some banks provide low interest rates but processing time can be long and processing fees may be high.
Private/foreign banks may have higher interest rates but a faster processing time and possibly no fees.
In short, you may end up paying the same amount in both cases.
Right question to ask: What is the lowest interest rate and fee combination offered?
2. Check the type of interest offered
Banks offer fixed and floating rates of interest rates on loans. You need to make sure that you understand the differences between the two. Also, some banks offer introductory interest rates for a limited time.
Right question to ask: Is the rate of interest constant throughout the duration of the loan?
3. Determine the length of the ‘holiday period’
A ‘holiday period’ refers to the time between completion of studies and repayment of a loan for higher studies.
Ask about the repayment period before applying for a loan. If you don’t, the bank can put deferment fees and may default the loan.
Repayments are immediate in the case of school/secondary school/graduation education loans as guardian is the borrower and not the student.
Right question to ask: When do I start repayments?
4. What if you need more time to repay?
Some banks allow students six to 12 months after course completion to pay back a loan or when they start a job, depending on which one is earlier.
Students who begin work immediately will have to start paying back their loan immediately.
Students need to repay their loan within 5-7 years of completing their course. An extension of a further two years may be given.
If you are going to be overseas, then you must be thorough with repayment procedures.
Right question to ask: Will I be given an extension to repay the loan?
5. Some banks charge for pre-paying a loan
There may be a penalty if you pre-pay a loan for some banks.
i) Nationalised bank
Loan pre-payment charge: Nil
ii) Private/foreign banks
Loan pre-payment charge: 0.25-2 per cent on the outstanding
Right question to ask: Is there a charge to pay back a loan early?
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