Parameters to look for while going for an education loan
Unlike any other loan, education loan provides the option of a moratorium period or a 'repayment holiday', which means, the borrower is given a leeway to repay the loan after the education course for which the loan was taken is completed.
An education loan typically has three repayment options:
• Education loan with repayment holiday. Many banks stipulate repayment within one year after completing the course or 6 months after getting a job, which ever is earlier.
• Interest alone is paid during the period of course. After the course completion, you start paying the actual EMI (principal and interest).
• You start repaying the loan through EMI immediately after loan disbursement, in which case you could get the loan at an interest rate lower by about 1 per cent.
The repayment conditions vary from bank to bank. Therefore, discuss this with as many banks as possible to get the repayment option according to your requirements.
Fixed or floating rate?
Some banks offer a fixed interest rate while others offer a floating interest rate on education loan. If the difference between fixed and floating rate is only about 1 per cent, it better to opt for fixed rate as these have shorter repayment tenures of 5-7 years.
Many banks do not offer genuine fixed interest rate where the interest rate remains fixed for the full tenure of the loan. They, typically offer a fixed rate loan with a reset clause. This means the bank can revise interest rate whenever the it feels like doing it. So ensure that you take a genuine fixed rate loan. If it is a fixed rate with reset clause, a floating rate may be a better option.
Finally it depends upon your risk appetite whether to opt for a fixed or a floating rate loan. If you are completely risk averse, you should go for a genuine fixed rate education loan. However, if you strongly feel that interest rate will go down and are willing to take risk, you can opt for a variable rate loan.