Educational Loan: Do’s and Don’ts

Education is given a lot of importance in India. Every year hundreds of thousands of students compete for the seats in the top colleges across the country as well as overseas.

There are many meritorious students that are able to secure seats in some of the best institutes but are unable to arrange the funds for the college fee, etc. This is where education loans can be of great help.

If you are about to apply for a student loan, then make sure you know about the Do’s and Don’ts of the same:

Do Start Looking Without Delay

As soon as you have secured a seat in the college of your choice, start comparing your loan options.

Thanks to the Internet, a large part of your research can be conducted from the comfort of your own home itself. However, you may want to visit some financial institutions in person that offer better options for more info.

Don’t Apply with a Bad Score

A lot of times the student has no credit history, which is why the bank asks their parents to become their loan guarantor or co-borrower. If the loan amount is high, then again, the bank may place the same request before them.

Either way, banks always check the credit score of the student as well as their parents. However, to apply for a loan with a bad CIBIL score can be quite a bad idea. This is because:

  • You won’t be able to get a good interest rate.
  • Your score could drop even further due to loan rejections and multiple hard inquiries, which take place when a bank or another financial institution requests a credit agency for your credit report.

Do Learn About the Eligibility Criteria

Although the actual eligibility criteria for getting a student loan may vary from one bank to another, the differences are usually minor ones.

In most cases, you would need to fulfill the following conditions:

  • You must be a citizen of India
  • You must have secured a seat in the college you are going to study in and applying the loan for
  • The course is a long-term course and is one of the select courses that qualify (usually engineering, medical, business, etc.)

Don’t Settle for the Interest Rate You are Getting

Unless you have no other option but to get a loan with a bad CIBIL score, you will have plenty of options to choose from. However, apart from various other factors, the interest rate should greatly affect your decision.

Most student loans come at an interest rate of 9.5% and can go as high as 15% or 17%. If you have a good credit score, then you can negotiate with the lender to offer a better rate. Otherwise, if you are lucky, you can avail a good rate around the festive seasons when several banks offer attractive schemes for loans, etc.

Do Enquire About Additional Charges

In a rush to arrange for the funds for the college fees or simply because of impulsiveness, a large number of students forget to inquire about many important things regarding education loans.

For instance, many banks impose a variety of charges such as processing fees, service charges, etc. In addition to these, there is the concept of prepayment charges, which is the fine you have to pay if you decide to repay the full debt before the actual completion of the term.

It’s really important to ask your bank about these things, especially the prepayment charges. Naturally, it’s best if you can find a loan in which you don’t have to pay the same.

 

Apart from these do’s and don’ts there are many other aspects to learn about student loans.

For instance, most banks can finance as much as 100% of the student loan depending on the amount. However, for bigger loans, which are usually above Rs. 7.5 lakhs, they ask for collateral.

The loan term is also usually between 4 to 7 years. However, you may get your lender to extend it if you have valid reasons.

By educating yourself and doing your homework in advance, not you can greatly improve your chances of getting a loan approved, you can do it at a good interest rate as well.

Insurance Plans India article

 

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Spend For Your Kids, And Get Tax Benefits!

Bringing up a child in today’s world is an expensive proposition. Right from the vaccinations, to kindergarten school, various additional classes and of course higher education continues to burn a hole in the parent’s pockets. So all parents will be happy and curious to know that how some expenses made for their children can actually get them tax benefits. Though I am sure this is not a driving force when it comes to doing the best for their children but, it definitely does help if you can save some money while taking care of your children’s needs.  Here is a list of tax deductible expenses made for kids:

  • Tuition Fees:

There would hardly be any parent who would not like their child to be provided with the best education facilities. The tuition fees paid by parents whether it is for a school, college or university is allowed as a deduction under Section 80C (up to Rs. 100000) of the Income Tax Act. This deduction is allowed for two dependent children per parent, so if both the partners are working they can both claim deductions for two children each.

  • Education Loan Interest:

Often higher education needs to be supported with the help of an education loan. Even if one plans well and saves for their child’s higher education, they still may have to supplement the expenditure with a loan or in some cases they may totally be dependent on a loan to fund the higher education of their child. It is important that the guardian has a good credit score if they want to apply for any loan as a good score improves the prospects of getting a loan approved. When takes an education loan, the interest that is paid on the education loan is tax deductible under the Section 80E of the IT Act.

The education loan is provided a for a full time graduate or post-graduate course from a recognized financial institution for pursuing studies in areas of engineering, medicine, management, applied or pure sciences. Taking other loans to finances education may not be a good idea. While personal loan is much more expensive as compared to the education loan, they like gold loans or loan against securities do not have any tax benefits attached to them too!

  • Health Insurance Premium :

Getting health insurance for yourself and your family is important as the cost of medical care is spiraling out of control. It is especially important that children have adequate health insurance cover just like adults. Health insurance bought by an individual for himself/herself, his/her spouse and children are eligible for deduction from the income up to Rs. 25000 annually.

  • Amount Spent on Treatment of Disabilities or Certain Illnesses:

As per Section 80DD of the Income Tax Act, expenses made for medical treatment of dependent children and other relatives too suffering from disabilities are eligible for deduction. The limits for the deductions are Rs. 75,000 for disability of at least 40% and Rs 125,000 for impairment that is more than 80%. Section DDB provides relief on expenditure made for treating specified illnesses for self, dependent family members which include children. The limit for this deduction is Rs. 40,000.

  • Income from Investments Made in a Kid’s Name:

Parents generally plan for their kids secure future by saving for them or making investments in their name. The income that is generated from these investments is added to the parent’s income. Income earned from investments that are in a child’s name can be claimed as a deduction (from the total income) up to an amount of Rs. 1500. This deduction can be claimed for two children.

  • Some Additional Allowances:

A few more allowances are allowed as deductions from the income as per the IT Act. They are hostel allowances of Rs. 300 per child and education allowance of Rs. 100 per child. These deductions are available for maximum two children and these expenditures must be made in India. Medical expenditure made up to Rs. 15000 per year is also allowed as a deduction subject to a limit of Rs. 150,000 annually.

So as we said earlier that parents would not make expenditure on their children based on the tax rebates they get or do not get but these rebates can help you save some money in a world where inflation is constantly on the rise!

 

Discover These Huge Facts About Home Loan

Home loan has been a boon for an average middle class Indian who does not have ready cash to pay for the house upfront. It is because of this facility that people can own a house of their own at an early stage of their life and pay for it over a span of next 15-30 years. If you are planning to buy a house in the near future, you must know the ins and outs of the home loan that will affect your financial life for the next couple of years. Here are some huge facts about loan that will give you a clear picture of what you are getting into.

Secured Loan

Several housing finance companies as well as banks offer this loan to individuals who wish to purchase the house. The property is mortgaged with the lender till the entire loan is repaid along with the interest. If the borrower fails to make the payment the bank can recover the amount through the sales proceeds of the house.

Purpose

There are several variants of a home loan. You can use this facility no just to finance the purchase a house but also to buy a land or construct a house on a plot or even renovate your existing house.

Value

According to the guidelines stipulated by the RBI, a bank can finance 75% of the property value. However some banks include the stamp duty and registration charges while calculating the cost of the house, so technically they sanction almost 80% of the property value. The remaining amount of 20-25% needs to be arranged by the borrower. The repayment capacity of the borrower is also taken into consideration while determining the loan amount that can be sanctioned.

Interest rate

 

The home loan interest rate can be floating or fixed. The floating interest rate can vary throughout the tenure of the loan. It is tied to a reference interest rate that varies with the market conditions and the state of the economy. So as the base rate changes the EMI amount also varies. In case of fixed home loan interest rate a specified rate of interest is charged for the entire tenure of the loan. This rate is slightly higher than the floating rate. Most banks these days disburse loans based on floating interest rate.

 

Eligibility Criteria

There are several parameters that are taken into consideration before a loan is approved. The amount sanctioned and the home loan interest rate is determined on the basis of employment status, years in employment, income level and credit score of the borrower. When you seek a loan, you need to prove to the bank that you have the capacity to repay the monthly EMIs. That is why the bank asks for your employment and income details. They want to make sure that the EMI is not more than 40-50% of your monthly income. They also check the past credit behaviour of the individual to ensure there were no previous defaults. A high credit score is considered a sign of responsible credit behaviour. It helps in winning the trust of the lenders. A low CIBIL score may lead to an outright rejection of home loan applications. In such a scenario you may have to look for loan with bad CIBIL score which may prove to be quite expensive.

Loan Tenure

All major banks offer a home loan of upto 30 years. A longer tenure will result in a smaller EMI, but it will also mean that your total interest outgo will be higher. If you can afford the EMI, try to keep the tenure as short as possible so that you save on interest costs.

Prepayment penalty

 

A major component of the initial EMIs goes towards interest payment. Since the principal amount reduction is very less in the beginning banks earn huge amounts in the form of interest. If your financial situation improves and you have surplus funds you would definitely want to prepay a part of the loan. Reduction in the principal amount would help you save on interest costs, but since it is a loss for the lenders, they discourage prepayments by levying a prepayment penalty. Read the terms and conditions carefully and understand whether there are any pre-payment charges before you sign on the dotted line.

 

Once you are clear with the various aspects of the loan you will know exactly what to expect when you do your research. Compare the various options you have from the banks as well as housing finance companies so that you choose the one with the most affordable EMI.