How Student Loan Works?

Your education affects your future prospects, and the rising costs add substantial financial barriers. In this chaos, education loans are seen as a bridge to overcome the funding barrier. Even though banks are providing significant help to the students, knowing the terms and conditions is a necessity. Understanding these intricacies of student loans is an effective way to manage your long-term finances that might get affected when you start the loan repayment.

What is Education Loan?

An education loan is a financial assistance for students provided by lenders under the priority sector to help them afford higher education-related expenses, including tuition fees, accommodation, books, and other living expenses. Education loans ensure that financial constraints don't hinder deserving students from pursuing their academic goals. In India, the co-applicant is mandatory, who is usually your parents or blood relatives. They take responsibility for the repayment of the education loan along with the applicant, and their income matters the most in the unsecured education loan. 

Types of Education Loans

You are also stuck on the question, “How does education loan works?” This question gets half answered when you understand the types of loan options available for students in India, whether you want to study in India or abroad. 

Secured Education Loan:

The secured education loan is a type of education loan where a person pledges an asset as security against the education loan. In this loan, the applicant gets the education loan at the lowest interest rate. 

Unsecured Education Loan:

In an unsecured education loan, you don’t have to pledge an asset instead, you need a co-applicant who takes responsibility with you for the education loan. Their income, credit scores play a major role in the loan amount. 

How Education Loan Works?

Well, you know that an education loan is financial assistance, but they do involve standard procedures and terms:

Application Process:

To get an education loan, you can't just visit the lender and get the funds. You are required to follow the procedure, and the first step is applying for the loans to arrange the required documents such as proof of admission, fee structure, academic records, income proofs, and identity verification. 

Approval and Disbursement:

Once you have applied, you will receive approval from the lender. You have to acknowledge the terms and conditions, and funds are disbursed to the educational institution in installments based on the semester fee schedule provided by the institution.

Interest Rates:

Education loans can have fixed or floating interest rates. The interest rates can vary based on the type of institution, course pursued, and the applicant's credit score.

Repayment Terms:

Education loans offer flexible repayment options, which include a moratorium period (course duration plus 6-12 months). The repayment during the moratorium can be customized by the applicant. This helps students manage their education loan without burdening the co-applicant.

How Does Education Loan Work Process?

You need an education loan and have to ensure that the lender you are approaching is offering the terms that serve you the best. So, let's understand the process you should follow to get the best deal.

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  Choose a Lender: Select banks or institutions offering a loan product that serves your financial requirements.

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  Documentation Submission: When you have decided on the lender. Confirm the required documents and arrange the documents for submission for fast processing.

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  Loan Sanction: After assessing the application and creditworthiness, the lender sanctions the loan.

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  Disbursement of Loan: Funds are disbursed directly to your educational institute as per the agreed schedule.

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  Interest Calculation: Interest is calculated based on the disbursed amount and not on the sanctioned amount.

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  Loan Repayment: Repayment starts after completion of the course duration and the grace period. After that, you have to pay the Full EMI; otherwise, your credit score might hit rock bottom.

Advantages and Disadvantages of Education Loans

Education loans can ease a significant burden, yet they come with their own set of pros and cons. Below is the table that will help you understand the features of education loans for both in India and abroad.

Conclusion

An education loan is a beneficial financial tool when used correctly; however, even minor missteps can impact your long-term finances. Thankfully, solutions exist to mitigate these challenges. Tools like the GyanDhan EMI Calculator and Future Earning Potential estimates help you plan and manage your loan repayment strategies.

If you require assistance or guidance with education loans for abroad studies, consider using the GyanDhan Loan Eligibility Checker. By checking your eligibility, you can take advantage of a personal Education Loan Counselor, simplifying your journey towards securing a brighter academic and professional future.

Read More:

• 
  Difference between Co-applicant and Co-signer in Education Loans
• 
  Get Education Loan Without Parental Income
• 
  How does MCLR Affect Your Interest Rate?
• 
  What is the ROI on Education Loan?

Frequently Asked Questions