Getting an education is one of the best investments one can make for their future. However, the increasing cost of college expenses and higher education can be unaffordable, prompting many students and their families to consider education loans. And for many students, taking out a loan is the first major financial decision of their lives. With little to no prior experience managing debts, students are vulnerable to making poor financial decisions and falling prey to predatory lending practices.
Here are some tips that can help students borrow smartly and confidently.
Budget Before You Borrow
A study abroad education loan requires a combination of careful planning and informed decision-making. Budgeting before you borrow can help you understand your monthly expenses and the resources available to pay for these expenses. Start with the total cost of education, including tuition fees, living expenses, travel, books, supplies and the essentials. Factor in available financial resources such as savings, part-time jobs or parental support. Take the time to track your current expenses and plan out future expenses. These aspects can help you understand how much loan you need to borrow.
Know How Much You Can Borrow
Borrowing more than they need is a trap many students fall into. However, it is important to remember that every extra rupee borrowed today accrues interest tomorrow. Therefore, borrow only what you need. Borrowing beyond your needs can feel like a safety net, but it can become an added burden later and impact your future financial goals. Begin by calculating the actual cost of education, factor in currency exchange and how much you can afford to repay. Your loan should fit into your future lifestyle. Understanding future career prospects can help you borrow smartly. As a rule of thumb, your student loan EMIs should not exceed your expected monthly income. Understand how much you need to repay, and use a student loan EMI calculator to calculate emi for education loan. Try different combinations of tenure, loan amount and interest rate to find what’s affordable for you.
Understand the Loan Terms
Student loans can prove to be a financial backbone for your academic journey in top global institutions, only if you fully understand the terms for borrowing. Several banks, NBFCs and providers of loans for educational purposes in India offer personalised education loan terms to meet the individual needs. Understanding these terms can help you make informed decisions regarding your loans. Some of these key components to review and understand include:
Interest Rates: Interest rate remains one of the most important factors to consider when applying for a loan. Generally, the interest applicable depends on the CIBIL score of the borrower/ co-borrower, repayment capacity, loan amount, and other terms and conditions. Even a small difference in interest rate can lead to a significant change in the total repayment amount.
Expenses Covered: Educational expenses can easily accumulate over time, and it is important to know whether your loan covers these expenses or not. Several lenders provide complete financial cover for every educational expense that studying abroad incurs.
Moratorium & Repayment Period: A moratorium is a grace period during which you need not make the full EMI payment. This period usually covers the study duration plus 6 months to 1 year after course completion or up to 3 months after the student secures employment, depending upon the lender.
Smart borrowing is about being intentional. Rather than rushing into the loan process, understanding these terms can help empower students to make financially sound decisions from the very start.
