As a parent, you would want to give your child the best in education. However, the price can weigh heavy and might leave you wondering how to afford your child’s studies without any compromise. This is where an education loan can step in to save the day. An education loanlets you finance your loved one’s studies minus any compromise.
If you are about to take an education loan for your child’s further studies, read on for some important information that will help you know more about the process.
1. On being the co-borrower
A parent or guardian is usually required to sign as a co-borrower or a guarantor on the education loan. Do note that banks may have certain terms and conditions when it comes to accepting a parent as a co-borrower. For instance, a parent with many years of service ahead of them or an active income might be accepted. However, if the parent has only one year of active service before they retire, the bank might reject them as a co-borrower. Do inquire into this carefully and chose a bank that works with your needs.
2. All about the collateral
Education loans that exceed Rs 7.5 lakh usually require the parents to put down some collateral. This helps reduce the risk for the bank. Additionally, putting collateral might also see you benefit from reduced costs on interest. Banks and financial institutions generally accept an owned home, fixed deposits, LIC policy, or government securities as collateral. Do check the entire list of acceptable collaterals with your bank and see which one suits you best.
3. The moratorium period
Your education loan will have a moratorium period that may be around 6 months. Some banks even stretch that up to 1 year. Use the moratorium period to pay off a part of the interest on the loan. This will help with affordable EMIs once the actual payments kick in after your child graduates and finds a job.
4. Tax benefits
Do remember that you can claim tax benefits for an Study loan. This happens under Section 80E. Claiming these benefits will really help you save money.
5. Documentation required
As a co-borrower, your credit score will be checked. A credit score of around 700 or more is considered to be suitable for any loan application. In addition to this, you may also have to submit some documents showing your bank records or proof of income when applying for the loan. The documentation required may differ slightly between banks so it is best to make a detailed note of what your bank requires.
Finally, do compare education loan rates before choosing which bank to opt for. Make sure to read customer reviews online to ensure that your bank will offer you good support in the long run. Also, do get loan pre-approval so you can be sure of your budget for tuition fees when searching for a university. We hope this article has proved useful. All the best!