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Educational Loan

An educational loan is a financial product offered by banks, financial institutions, and government schemes to help students cover the costs of higher education. It is specifically designed to support students in pursuing academic programs in India or abroad.

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Category of Educational Loan

  • Undergraduate (UG) Loans: For students pursuing a bachelor’s degree.
  • Postgraduate (PG) Loans: For students pursuing a master’s or doctoral degree.
  • Vocational/Professional Course Loans: For students opting for professional or vocational courses.
  • Study Abroad Loans: For students intending to study outside the country.
  • Top-Up Loans: For students who need additional funds after having an existing educational loan.

Features

  • Loan Amount: Varies depending on the course, institution, and location. It generally ranges from a few thousand to several lakhs.
  • Interest Rate: Generally ranges between 7% to 15% per annum, depending on the lender and type of loan.
  • Repayment Period: The repayment period can vary from 5 to 15 years, depending on the loan amount and terms set by the lender.
  • Collateral: Secured loans may require collateral (such as property or fixed deposits) for larger amounts, while smaller loans (up to a certain limit) may be unsecured.
  • Moratorium Period: A grace period during which the borrower does not need to make repayments, typically lasting until the course completion and a few months afterward.

Eligibility Criteria

  • Indian Nationality: The applicant must be an Indian citizen.
  • Admission to a Recognized Institution: The applicant must have secured admission to a recognized educational institution in India or abroad.
  • Age Limit: Typically between 18 and 35 years, depending on the lender and course.
  • Co-applicant: A co-applicant (usually a parent or guardian) is often required, especially for loans above a certain amount.
  • Creditworthiness: The financial background of the co-applicant is considered, and a good credit score improves loan approval chances.

Benefits

  • Access to Education: Enables students to pursue higher education without the financial burden of upfront costs.
  • Flexible Repayment: Loans come with flexible repayment options, including moratorium periods and low EMIs.
  • Tax Benefits: Interest paid on the loan may be eligible for tax deductions under Section 80E of the Income Tax Act.
  • No Prepayment Penalty: Many lenders offer no penalty for early loan repayment.
  • Loans for Various Courses: Covers a wide range of courses, including undergraduate, postgraduate, and professional courses.

Risks

  • Interest Burden: While education loans provide immediate relief, interest payments can accumulate, especially for long repayment periods.
  • Repayment Strain: After course completion, if the borrower is unable to secure a job or earn sufficiently, the repayment process can become a financial burden.
  • Impact on Credit Score: Failure to repay the loan on time can negatively impact the borrower’s credit score, affecting future financial transactions.
  • Collateral Risk: For secured loans, failure to repay may lead to the loss of collateral, such as property or assets.

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