How to Choose Your Bank for Education Loan to Study Abroad

To cover the expenses of studying abroad, students borrow education loans from banks and NBFCs. You must select the right education loan scheme with the conditions that suit you. Research different banks and compare their interest rates, and understand different fees & moratorium periods. 

Education loan plays a pivotal role in the lives of meritorious students who aspire to study at a premier institute but lack the required financial resources. With education loan, it has become easier for parents to send their children abroad for higher education. Competitive interest rates, longer moratorium periods and flexible repayment terms also enable the students to take responsibility of their higher education.

Choosing the right course and university that best fits your interest area and career goals, similarly, choosing a bank/financial institution for education loan also requires extensive research and deep analysis of your financial standing and requirements. In India, many banks and financial institutions extend financial aid to students aiming for higher education in India and abroad. However, the set of features and services associated with every lender are different. The interest rates, processing fees, moratorium period, prepayment terms, tax benefits, repayment tenure and conditions vary largely among banks. It is, thus, advised to compare and then opt for a package that is aligned with your needs.

Note: Don't let finances become a hindrance in your dream of studying abroad. Students, who wish to study abroad, may contact India’s leading education loan providers through Shiksha Study Abroad

Things You Should Consider Before Choosing a Bank for Education Loan

• Interest Rate: Interest rate remains the most important factor to be considered while selecting a bank for an education loan since even a small difference can help you save a significant amount of money. Understand the difference between fixed and floating rates of interest, compare interest rates offered by various banks and financial institutions and opt for the most cost-effective option.
• Tax Benefits: Education loans taken from scheduled Indian banks and gazetted financial institutions are eligible for tax deductions on the interest part of the loan under Section 80E of the Income Tax Act of India, 1961. Tax deductions can be availed for a total of 8 consecutive years – the year in which the loan is taken and 7 consecutive years or till the interest part of the loan is completely paid off, whichever occurs earlier.
• Eligibility for Study Loan: Most banks and financial institutions have an evaluation process to determine your education loan eligibility. The process includes a thorough review of your academic background, creditworthiness, co-applicant details, family income etc. The amount of loan disbursed also depends on the nature, of the course, you have applied for, the reputation of the college/university and the employment probability post-course completion. Also, not all lenders extend financial aid for all courses so it is recommended to check your eligibility in advance.
• Education Loan Documents: It is also advised to get the list of required documents ed from the bank to give you ample time to gather missing documents and begin the loan application process in time. Most banks usually ask for address proofs, a copy of mark sheets of previous education and entrance exams, passport-size photos, co-applicants' income proof, etc. While some lenders also ask for a confirmed admission letter from your university, some lender approves education loans even before confirmed admission.
• Costs Covered: The amount of education loan disbursed depends on a lot of factors like academic background, the reputation of the college/university, the co-applicant’s credit history etc. While some banks cover the complete cost of education, some banks cover only a part of it. Make sure you ask your education loan provider about the costs covered in your loan. These costs are tuition fees, lab and equipment charges, library and examination fees, personal expenses and travel fares in case of overseas education.
• Moratorium Extension: Lending banks and financial institutions give a grace period of six months to one year after the completion of the course before the prepayment starts which is known as the moratorium. This is done to give students time to acquire a job and gain financial stability before they begin to repay their education loans. In some cases, however, it may be required to extend the moratorium period due to the unavailability of a job or an unexpected financial obligation. Ask your lender about their policies and charges, if any, for an extension of the moratorium period.
• Prepayment Terms: The sooner you pay back the loan, the more you save on interest that accumulates on your principal amount. Ask if your lender will charge a penalty on prepayment. Accordingly, you can devise a strategy for getting a job to repay the loan as soon as you can. Get details on the pre-payment terms and conditions from various lenders to reach a decision. Check tips to know how to repay student loans faster?
• Loan Processing Time: While applying to foreign universities, meeting deadline is crucial. The loan sanction letter is an important document that is needed to be shown as proof of financial resources at time of university and Student visa application. It is important to ask the loan processing time of various lenders to help you plan your complete application process accordingly.
• Total Cost over EMI: Education loan is repaid in EMIs that are distributed evenly through the loan tenure. Some people prefer longer loan tenures to bring down the amount of the monthly installment. While this may seem convenient in short term, the total cost of your loan will climb higher with each year that is extended on the loan tenure. Go with the lender who offers you the best interest rate during a loan tenure that makes your package cost-effective. Use the Education loan calculator to understand your EMI for study loan.
• Service Charges: Besides the loan amount, there are many charges that are applicable to your education loan. These include, but are not limited to, loan processing fee, moratorium extension fee, prepayment charges, etc. Ask about all these charges beforehand to make sure there are no surprises.

A large number of banks and financial institutions provide education loans to students aspiring for higher education in India and abroad and each lender offers a diverse set of services and benefits. In addition to taking advice from previous borrowers, it is advised to analyse and compare different products to find one that best suits your unique financial requirements.

Related Articles:

• Know the A to Z of Study Abroad Loans: All Terms and Their Definitions
• Step by Step Guide to Education Loans
• Education Loan Vs. Self Funding to Study Abroad
• Collateral for Education Loan: Everything You Need to Know
• Everything You Need to Know About Education Loan

About the Author

H DFC Credila, an HDFC Ltd. Company, is India's First Dedicated Education Loan Company. With specialized focus, in-depth understanding of the requirements of students who wish to pursue higher education, HDFC Credila offers Customized Education Loans Home Delivered! HDFC Credila has funded tens of thousands of students from India to over 2100 unique educational institutes across 35 countries!