If you are a student trying to raise fund for pursuing higher studies, education loan can be a viable option for you, given that it comes with certain benefits that may not be available with any other credit options.

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Let’s look at some of these benefits and find out how they fair against other loan options:

Loan amount

In case of education loan, lenders grant amount depending on the fee and other cost involved for completing the course. Typically, you can avail loan up to Rs 75 lakh for studies in India, and up to Rs 1.5 crore for studies abroad. In comparison, personal loan is granted on the basis of borrower’s requirement and financial condition. Loan amount in this case can be as high as Rs 40 lakhs.

Opt for education loan if you require higher loan amount. However, keep in mind that unlike education loan, personal loan provisions for other expenses such as cost of re-locating to new city and accommodation etc. Hence, it would be a good option for those who need funds to cover additional expenses.

Rate of Interest

Education loan interest rate is usually lower than other loan options such as personal loan. You can avail education loan for as low as 8.85% per annum. Female applicants can receive additional concession of up to 0.5% on interests. Also, there are a few financial institutions that offer 1% concession, if you service interest during the moratorium period. Some lenders offer loan at lower interest rate if you seek admission in specialized course or institute. Hence, make sure you check and compare between all available options before applying for loan.

Moratorium period

Moratorium Period or EMI holiday refers to the duration when borrowers don't have to pay any EMI. It usually lasts for up to 1 year after completion of the course. This feature is not available with other loan options wherein you’ll be required to start repaying EMI immediately after. Education loan, hence, prevents borrowers from the burden of loan repayment, and give them enough time to find a job before loan start.

However, keep in mind that in case of education loan the lender continues to charge interest throughout the moratorium period until you start repaying your loan. Hence, consider paying the interest during the moratorium period in order to avoid accumulation of interest.

Loan tenure

You can avail education loan for a repayment period of up to 15 years. Since the repayment period starts after the moratorium period, you get additional time to create sufficient corpus for paying off your education loan. You can further request your lender to extend the tenure in case you are unable to service EMIs. Keep in mind that you cannot extend the tenure beyond 15 years.

Note that you may have to pay more interest if you choose for longer loan tenure and hence, I would recommend you to opt for shorter tenure loan instead.

Credit score

Timely repayment help borrower and co-applicant boost their credit score. This is especially helpful for students who may be new to credit. On the flipside, any default or delay in repayment could also weigh down credit score of the parent as well as the student. Therefore, do not to miss or delay any EMI and include all charges and factors while calculating the monthly EMI.

Tax benefits

You can avail tax benefits on interest paid towards education loan under section 80E of the Income Tax Act of India, 1961. This benefit can be availed only for consecutive 8 years or until the loan is paid in full, whichever is earlier. In comparison, if you take a personal loan or top-up loan to meet your financial obligations towards education loan, you are not eligible for tax deduction of any sort.

Keep in mind that if you take an education loan on behalf of your child, only you would be eligible to avail tax benefits on loan repayments. Your son/daughter would not be able to claim tax benefits even if he/she takes responsibility for repaying the education loan. Therefore, it is recommended to take a joint loan instead.

Gaurav Aggarwal is associate and head of Unsecured Loans at Paisabazaar.com

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First Published:Oct 9, 2018 7:31 AM IST