The Buyt Desk
Education loans help students to fulfil their dream of higher education. Lack of funds should not be a hindrance to further studies and thus an education loan is helpful in fulfilling the fund requirement. Even working professionals can get an education loan for taking up a course for the advancement of their career. The concept with education loans is that students get the fund to finance their education, and they return it after completing education in instalments. COVID-19 has resulted in many hardships and loan defaults are on a rise. Education loan default has consequences not only on the borrower but also on the co-borrower of the loan.
How Defaulting Education Loan Can Impact The Borrower
Collateral: The loan above 7.5 Lakhs is secured. That means the borrower has kept collateral to get that loan. In case of default, the bank liquidates the collateral asset to recover the loss.
Spoil CIBIL Score: CIBIL is the summary of credit records of a loan borrower. The low CIBIL score makes you ineligible to get a loan from any bank or NBFC. Furthermore, recovering the CIBIL score is a time-taking process, and it also calls for lots of effort.
Interest Rate – The delay or missed EMI payment increase the interest rate of the loan. Additionally, the bank will add fines which makes the repayment amount huge.
Guarantor/Co-Signer – In case you fail to pay the loan amount, the burden will go onto the co-borrower/guarantor. And if you continue to miss the payment, the CIBIL score of the co-borrower will come down, jeopardizing the future of both of you.
Legal Action – After the long skip of payment, the bank will treat you as an NPA, i.e. non-performing asset. Once it happens, you will start getting calls from banks and other bodies for the amount recovery. Banks have collection companies to get the money bank. If your name comes on their list, you might get into big trouble.
It is not like after facing all you can get away with the loan, you will still have to pay back the loan amount. Thus, it is better to look for an alternative than avoid the situation. Banks provide multiple options for amount repayment if you have a valid reason to give.
Things You Can Do To Save Yourself From This Situation
Talk To The Bank Manager – Do not avoid facing the bank. Instead of missing communication from the bank, if you choose to talk to bank representatives, they might give you some ways to come out of the situation. If you fail to pay the EMI for a valid reason, the bank may reconstruct your loan and let you pay lower EMI by increasing the loan tenure. The maximum time a bank can give for repaying the loan amount is ten years for an amount less than 7.5 Lakhs. For an amount over 7.5 Lakhs amount, the repayment tenure is 15 years.
Ask For The Deferment Period – If you are going through economic hardship, like unemployment, leaving a job, etc., you can approach the bank and ask for a deferment option. It allows you to stop making payments for some time if you qualify for the same.
If you have already defaulted on your education loan, it is advisable that you contact someone in the industry and look out for help to avert legal trouble. The bank may also offer you a one-time settlement option in exceptional cases. You can choose that as well for refinancing.
