Category Archives: Loans

In the previous article, we discussed how parents can find the best education loan. In this article, we will discuss the responsibilities of a parent in an education loan Education inflation is making things worse for parents. Let’s cite some figures to help you realize the state of education inflation in India. The education inflation rate in India was 0.63% in April 2021. But it has increased to 4.12 in the corresponding month of 2022. https://www.youtube.com/watch?v=awKjIuVlRAQ On the other hand, with the economy taking a hit due to COVID-19, many parents might find it tough to fund their child’s education. That’s when an education loan is one of the best solutions to make your child realize their dreams.   You can apply for an education loan in the public sector or a private bank. Even non-banking financial institutes nowadays offer education loans to eligible candidates. But with increasing costs, savings won’t be enough to fund your child’s education. No doubt, the best way to support your child’s higher studies is with the help of an education loan. So, what are the exact responsibilities of a parent for an education loan?   1. Always maintain a high credit score   If you are applying for a student loan for your child, the lender would ask you to act as a guarantor for the loan. It is crucial for parents to maintain a good credit score to showcase their creditworthiness to lenders.   A minimum requirement for credit score varies from lender to lender. A credit score of more than 700 is pretty good. Maintaining a good and higher credit score can help you negotiate with the lender to provide the loan at a better interest rate  https://www.youtube.com/watch?v=fufyFB9aMQI 2. You shouldn’t worry much about the collateral   Parents often hesitate to apply for education loans due to the fear of mortgaging their assets or property. However, you shouldn’t stress much about mortgages and collateral. An education loan can be collateral free. It also decreases loan sanction time and makes the overall process hassle-free.   Best way to explain child education loans Read More 3. Tax benefits on education loan  Note that tax deduction under Section 80E is one of the main advantages of an education loan. This deduction is available both to the parent and child, based on who repays the loan. Education loans offer a good tax planning opportunity. Since the complete interest can be deducted under Section 80E, the actual repayment cost becomes much lower.   https://www.youtube.com/watch?v=4gTQkdePOWM 4. Try to in still healthy financial habits with your children    As a responsible parent, your primary objective should be to instill good financial habits in your children. Good financial habits will help your child to repay the loan on time. And when your child bears the loan repayment responsibility, it is an excellent way to inculcate financial discipline. In this manner, they can build their own credit history. Building their own credit history in the early stages opens up a world of financing opportunities for them in the future.  5. Go for competitive interest rates   Interest rate is one major factor that influences the loan amount and EMIs. For instance, if the interest rate is high, the repayment amount will increase drastically. As a parent, your primary responsibility should always be to opt for education loans that come with lower interest rates.   Education loans in India don’t come affordable. Moreover, the overall NPA of educational loans is pretty high. That’s why banks charge exorbitant interest rates. As a responsible parent, you should remember that banks decrease interest rates by 1% when it is paid while the child pursues their education. Furthermore, you should repay the loan without defaulting.          6. Make use of the moratorium period  Parents typically make use of the moratorium period. Note that you cannot get a moratorium period on every education loan. Certain lenders and government-based financial companies don’t begin the loan repayment process unless the student finishes the course and completes at least six months in the professional workplace.   7. Know the significance of margin money  You should closely analyze how much the financial institution will finance and how much you need to put in. The contribution from your end is known as the margin money. The requirement of margin money usually varies from one lender to another.   For instance, the PSU banks typically charge a 5% margin money for education loans above INR 4 lakhs for candidates studying at Indian Institutes. On the other hand, they will charge 15% of the margin money if your child enrolls in a foreign university.   In most cases, private lenders typically don’t charge margin money when you apply for education loans from them. But as a responsible parent, you should make sure not to pay higher interest just to avoid margin money.     By keeping these facts in mind, you can ensure that your child can repay the loan quickly and become debt-free! Plan your finances well and educate your child wisely to help them become successful in their careers. TALK TO AN EXPERT

In the previous article, we discussed how to save your child from a student debt trap. In this article, we will discuss whether should you take a loan for a child's education. The cost of education has been steadily rising. Many parents struggle to provide for their children's educational expenses. Today, the price of an MBA ranges from Rs 10 lacs to Rs 25 lacs.   If you want your child to attend top-tier universities abroad, then the cost automatically multiplies!   Given the exorbitant price of college and the innate desire to give your child the best education possible, you may think about either saving money or borrowing money. Let us examine these two choices in more detail:   Education loan Access to education loans is simple and is given by all of India's leading financial institutions. An advantage of an education loan is that it is readily available.   You don't need to spend years building up a corpus. You can pay for your child's education in a few short weeks. Of course, the interest rate is a major drawback.   An education loan typically has an interest rate between 10% and 13%. Of course, this increases the price of schooling overall, which is already relatively high. Education loans have the drawback that your child will be responsible for paying them back once they are old and working.   Education loan puts undue pressure on your child. They may not be able to pursue a career that aligns with their interests because of the pressure of large repayments. This kind of debt may unnecessarily burden the family finances in the long run.   Thus, taking on an education loan is efficient yet the interest rates and pressure of repayment can be mentally and financially stressful for the family and your child. Let's look at investment as a means of paying for your child's education.   source: pixabay https://www.youtube.com/watch?v=tdwqQH0xkFw Investment Investment is an underutilized way of paying for your child's education. Many parents turn to loans rather than saving for their child's educational needs. Investment requires time and depends upon your child's age and the kind of education they want to pursue in the future. By utilizing a strategy for systematic investment in an equity mutual fund scheme, you can leverage the power of compounding to accumulate a sizable corpus by setting aside a manageable sum each month to pay for your child's education. There are no interest charges or payback obligations. Although you can immediately support your children's education with an education loan, it might not be the most excellent choice.   Your children will eventually be required to contribute a portion of their future income to the debt repayment. The repayment burden frequently emerges as a crucial factor when assessing employment alternatives.  The best way to save for your child's education is through a SIP. Your initial investment and monthly payments are not only considerably less, but you can take care of this significant expense relatively easily compared to taking a loan.  It is important to note that tax exemptions for education loans are allowed only for up to eight years. In contrast, the tax benefits to mutual funds apply even if you invest in equity-linked saving schemes (ELSS) that come with a lock-in period of 3 years.   Coming to the comparison, it seems that equity investments offer more advantages overall than student loans. However, you don't need to pick one; you can combine the two to achieve your objectives efficiently.   Utilizing both will ensure lower interest costs and leave money for unexpected requirements. Perhaps employ more investments rather than loans to fund your children's education. But ultimately, the choice is yours. TALK TO AN EXPERT