MBA education loan is a big financial burden, whether you are taking it for India or for abroad. For that reason, loan applicants must try to adhere to some of the best practices while taking education loans. Read on to know more.
In our two part articles titled, "Financing your MBA education (Part 1)" and "Financing your MBA education (Part 2)", we discussed various sorces of funds available for your MBA education, and showcased the value of using own savings and equity as a preferred choice. We also covered various banks and their education loans schemes. In this article, we will highlight some of the best practices, while taking the education loan.
While, education loans enjoy a slightly relaxed repayment schedule, and slightly lower interest rates, the risk of financial leverage are bound to constrain a family's finances. Taking an education loan has several challenges as the borrowers and the co-signers need to understand the concept of moratorium period, and understand the interest rates and repayment terms. They must also be aware of the tax benefits under the Section 80(E) of IT Act. However, missing out on EMIs can result in reduction of your credity ratings, financial charges (including penalties). So, borrowers follow these easy steps and ensure less taxing education loan -
Understand the loan schemes
Our above articles show, there are several private and government banks as well as peer-to-peer financiers that offer education loans for MBA education. It is important to understand that each loan scheme differs from the other, in terms of the amount that you can borrow, the interest rate, the guarantee required etc. Therefore, it is very important to have all the possible information on education loan schemes, compare them, and then choose the best loan suited to you.
As written above that the borrower can avail tax benefit, the education loan is exempted under income tax and thus the borrowers can pay the debt over a longer period of time. Generally, students take 1 year to 9 years to repay loans. So, there is no reason to hurry for students as banks may also offer lower interest rates with longer repayment period. Students can take their time and choose the right option
Check out for margin money requirements
Most of the financing institutes may offer either full or partial funds required for your education loan. They do it so based on their own list of MBA institutes and other preferences. The financing companies sometimes may also ask the borrowers for the margin money to be paid alongside the partial funding. This is an extraordinary demend, so borrowers must negotiate. You should try to get your loan without the margin money, so you must check for 'margin money rule'.
Find out about the Interest rate
Financing institutions declare education loan interest rates as 'Base Rate + Spread'. The borrowers must check and recheck the base rate and the spread with the banks to avoid confusion and later confrontations. The other thing that is needed to be known for the ineterst rates is whetrher it is floating or fixed. Floating interest rate changes with fluctiations in the base rate, while the fixed interest rate is, well, fixed. Both has their own merits and demerits, and yoyu are advised to investigate. Financing institutions levy interest during the moratorium period, which sometimes is 'compund interest rate' rather than 'simple interest rate'. Make sure that the banks enter the correct moratorium period and charge only simple interest.
Negotiate processing fee, and even interest rate
Loan Processing Fee can be waived off in case of a meritotious student. So first try to find out about the processing fee, which can be anywhere from 0.5% to 1% or a flat fee, and then try to find out if it can be waived off for you. As you all know that B-schools award extra points for your work experience; Banks too can award you some waiver on the interest rates. Try to negotiate with the banks to get lower interest rates if you are an experienced professional.
Female MBA aspirants get lower interest rates
To encourage women to pursue higher education, financial institutions too offer women candidates slightly lower interest rates (to the tune of 0.5% in most cases). They can also negotiate the moratorium period, repayment terms and other aspects of the education loans.
If possible, start paying part of education loan in the moratorium period
Starting the repayment of education loans in the moratorium period can often reduce the interest rate by 0.5% to 1% (ofcourse, you have to negotiate). Needless to say, this action will reduce the financial burden during the loan repayment period, which will also result in more saving.
We hope that you will follow these easy steps, and reduce your financial obligations. Happy MBA!