1. When do the loan payments begin?
Repayment will commence one year after completion of course or 6 months after securing a job, whichever is earlier.
Most of the banks require you to repay loan in 5-7 years after commencement of repayment.
2. Do I have to pay any security for loan?
Upto Rs. 4 lakhs: No Security
For Loans above Rs. 4 lakhs and upto Rs.7.50 lakhs:
- No Collateral Security required
- Co-obligation of parents/guardian is must.
- One satisfactory third party guarantee.
The bank may, at its discretion, in exceptional cases, waive third party guarantee if satisfied with the net-worth/means of parent/s who would be executing the documents as "joint borrower".
Above Rs. 7.50 lakhs:
Tangible collateral security of suitable value, along with the assignment of future income of the student for payment of installments.
Security can be in the form of:
- Government Securities/ public sector bonds
- Land/building
- Units of UTI, NSC, KVP, LIC policy, gold, shares/debentures,
- Bank deposit in the name of the student, parent/guardian or any other third party with suitable margin.
3. How is the loan amount calculated?
Repayment is done on an EMI basis at the time of commencement of the repayment. EMI stands for Equated Monthly Installments. This installment includes both principal and interest components. The EMI would be calculated depending on the tenure you choose, to repay your loan. The EMI would be higher if you choose to repay within a shorter period as against a longer-term loan. If you have the capacity, you should prefer a shorter repayment period as that reduces the interest cost over the term of the loan.
4. How long does it take on an average for paying off the loan?
The repayment would begin one year after the course period or six months after you get a job, whichever is earlier. You are expected to pay a minimum amount equivalent to the EMI on a monthly basis. However, you can also choose to pay more than the EMI, and there is no prepayment penalty. Some banks also allow you a moratorium on payment of interest. This means that you can defer payments of even the interest during this period. Hence, there is no need to pay anything to the bank at all upto 6 months after the course is complete, or you get a job (whichever is earlier). If you opt for this option, then the interest is compounded quarterly and added to the principal sum for repayment. This option carries a higher rate of interest, but is beneficial to those who cannot repay the loan during their studies.
5. Since there is a moratorium period, how will my repayments be determined?
The outstanding interest for the moratorium period will be added to the loan amount at the time of commencement of the repayment. The EMI will be determined on this amount at the time the repayment is to commence.
6. Do I have to pay prepayment penalty?
There is no prepayment penalty on educational loans. If you find yourself in a position to prepay in the early years of your career, you can pay off the entire outstanding loan amount without any penalty.
7. What if I am unable to complete the course on time?
If you are not able to complete your studies, you will have to start paying the EMIs immediately. However, some banks may give you a grace period, either to continue your course or to start repaying the loan, but this is entirely at their discretion.
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