The Buyt Desk
An education loan is a specific-purpose loan given to complete higher education. It can run for as long as 15 years but the loan can be paid off early to reduce interest payments. Education loans have a unique ‘Moratorium period’ feature that allows borrowers to select not to pay the EMI for up to 1 year from the study completion or 6 months from beginning a job. But, this period varies based on the bank policies.
When you should start repaying an education loan?
Start repaying a loan as early as possible. The Sooner you finish the loan better it is so you can use that money to reach other financial goals. Also, the moratorium period has some interest. The interest rate of an education loan is too high. Hence, if you don’t repay the principal amount, the interest will keep accumulating. This results in an increasing burden of interest and rising overall loan costs without reducing the due loan amount. On the other hand, starting education loan repayment early can help you in earning a good credit score.
Best tips to repay the education loan
Here is how to repay an education loan with limited income.
- Go with a higher loan tenure
Choosing a secured education loan helps in getting a tenure of 10 or more years. The longer tenure provides a more comfortable loan repayment margin by reducing the monthly EMI installment. Start repaying the loan in the moratorium period. To reduce the overall interest rate and repayment cost, try to allot some resources towards interest prepayment, primarily during the moratorium period.
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Start part-time job
Start planning your loan repayment while studying. Take out some time from your study schedule and start working part-time or as a side hustle. For example, providing graphic design services, teaching some courses, online selling your art, and others. This helps in improving your income and start paying a loan when you’re pursuing your studies.
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Look for a balance transfer
Consider the bank loan transfer to avail of low-interest rates. Try to negotiate with your current bank for a cheaper interest rate as much as possible. If they don’t agree to that, use the amazing facility of a balance transfer.
Selecting a lender that provides a low-interest rate on your loan balance amount helps in saving a significant portion of the interest amount. Having the same EMI will help you in saving further on interest payments. This will reduce the tenure to some extent and prevent interest obligations.
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Live economically
Lifestyle inflation in tandem with your earning can make whole efforts of increasing your income in vain. So, try to live economically with only the basic necessities till you repay the education loan amount. Create a defined budget with all necessary expenses like clothing, food, rent, and others. Get rid of all the unwanted expenses. Find out the difference between your desires and requirements and give priority to the latter.
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Get a loan only for the beneficial course
Avoid taking a loan for a costly course that promises to be an airstrip for a worthwhile salary package in the future. Evaluate your interest first. If your interest is in a course that is expensive, go for it while considering its present and future scope. Determine the rules and regulations for working in the nation, immigration regulations, visas you can apply for, and other important factors. This will help you in repaying the loan while being completely satisfied and happy with your job profession.
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More saving
Save some amount from your monthly salary and use it in the future for your education loan prepayment. For more savings, you can start fixed deposits (FDs), open a savings account, or a recurring deposit (RD). Financial experts always recommend saving as much as possible and limiting spending for a time till the loan tenure. It will help in timely and easy paying the loan.
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Use tax benefits
Students taking an education loan from Indian banks can make the best use of tax benefits under Section 80E. Under this section, borrowers who have taken up and repaid the education loan are eligible to get a tax deduction on the interest paid on that loan.
Process of repaying the education loan
Education loan repayment is not a highly challenging process. You only have to contact your bank manager who will note down your account details and start the loan repayment process on the mode of auto deduction. For more associated information, you can look for different education loan schemes launched in India.
