Did you avail an education loan to finance your college education? Worried about repaying it? Fret not. Disciplined financial planning is the only solution. Mr. Amit Gainda, CEO, Avanse Financial Services explains how to strategically plan repaying your education loan. To know more about repaying your education loan, read the complete article below.
For students with aspirations for higher education, a wide variety of education loans have given wings to their dreams. An education loan is the most cost effective means to fund education. A wide spectrum of committed services and products of banks and NBFCs have enabled several deserving students across the nation to fulfil their aspirations and dreams of higher education.
In present times, education loans are easily available with the base criteria being an Individual’s past academic performance, course and college he/she is opting for, entrance exam score, co-applicants, CIBIL score, etc.
To guide students who plan to or have applied for an education loan, below are few important aspects they need to be aware of-
Taking charge of your finances
Disciplined financial planning is the only solution. As the repayment strategy, prepayment of the loan should be the top priority as this reduces the tenure of the complete loan. However, at the same time, the student should focus on savings through other secured savings instruments to accumulate a corpus of funds every year to repay the loan.
Interest amount repayment
It is always better to start early. Education loans can be availed with or without a collateral depending on case to case basis. The rate of interest is lower when the education loan is availed with collateral which eventually reduces the EMI amount.
Students can begin paying off the interest amount while pursuing their education by working part time or with flexible work opportunities that are available across the world. At this time, the interest charged is simple interest, which eventually lowers the repayment amount. From thereafter, the EMI will be deducted towards the principal amount repayment.
Prepaying your Education Loan
Generally, the repayment period for an education loan is 10 years but students may pre-pay the loan earlier as per their earnings.
Should you pre-pay the loan?
Education loan rates from banks or financial institutions are currently in the region of 12-14% annually depending upon whether it is a secured or an unsecured loan. However, if the student is paying anything more than 50% of his/her salary towards repaying the loan, it is imperative to reduce the burden at the earliest to start accumulating sufficient funds towards savings. Another option can be to partly prepay the loan from a bonus, any personal savings, or any other variable pay like incentives linked to professional performance.
Begin investing for the future at an early stage, loan repayment should not be the only priority
Students and young professionals must consider investing funds for future goals. Single young professionals have the liberty to live on a low maintenance budget, which can change once commitments increase to fulfil other needs such as home loans, car loans and maintaining other liabilities. Hence they must develop a habit to save and invest a part of their salary in other instruments from an early stage to achieve future goals.
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