This article focuses on the most important details that need to be asked before you apply for an education loan from Indian bank for higher education. There are several banks offering different types of education loans and you must be aware of all the important details before taking an education loan. The following precautions need to be taken
Precautions and details to be taken before applying for student loan for higher education in US
- Margin money: Maximum loan amount that will be disbursed may not be exactly the amount that is sanctioned. There is some margin money as a hidden clause for education loans in Indian banks. For e.g. For a sanctioned amount of Rs. 20 Lakhs, there will be a margin amount of 3-4 Lakhs, and hence in the end only about 17 lakhs will be disbursed by the bank. Make sure you understand the margin amount very carefully
- Disbursement directly to US University: Most of the US Universities require fees to be paid through wire transfer or DD. Make sure your bank provides these modes of payment. Either the bank can directly make the fee payment by wire transfer to University account or issue a DD in US dollars in favor of the University.
- Disbursement in tranches: Many banks have started providing loan amount in tranches as and when required. For e.g. if you need Rs. 5 lakhs for the first semester, you can take only that much amount and pay the interest only for 5 lakhs till your next disbursement. Make sure your bank has such option of multiple disbursements in tranches.
- Expenses that are considered for loan: Most banks provide loans only for tuition fees and not for living expenses, some banks provide only for tuition and other academic related costs for US Universities. Make sure you understand what expenses will be covered by the loan amount.
- Repayment options: Some of the banks have a repayment period of 10 years, while some have less. But make sure that you have the option of repaying the entire loan any time in between. Some banks charge 1-2% for prepayment loan clearance.
- Loan processing fees: These are the charges required for obtaining the bank student loan sanction letter. The charges of collateral valuation, documentations, verification and other charges are included in the loan origination fees. Many banks charge about 1% of the principal loan amount as the loan processing fees, also called as origination fees. Hence, for an amount of Rs.20 lakhs, you might have to pay Rs. 20,000 towards loan processing.
- Collateral accepted: If you have property outside your city, such collateral may not be accepted by your bank. Some banks also accept gold, fixed deposits, Insurance coverage and other fixed assets as collateral. Make sure your documents are sufficient as per the requirements of the bank.
- Time required for getting loan sanctioned: Make sure about the time that is required for getting the loan approved. Some banks might require more than 15 days for loan approval and hence your schedule might be affected based on the loan approval.
- Hidden charges of student loans: Read the student loan agreement very carefully. There might be some hidden charges and hidden clauses that you must be aware of before signing the agreement. Make sure you have completely understood the loan disbursement and repayment methods.