5 mistakes people make while taking an education loan
Taking an education loan, however, is a life-altering decision – one ought not to be taken lightly. If it is not given due attention and care, it can become a chronic headache.
Education loan is the second largest contributor to consumer debt around the world, led only by home loan. Thanks to the trend catching up in India, millions of students have been able to fulfill their dream of pursuing higher education – both within the country and abroad. Taking an education loan, however, is a life-altering decision – one ought not to be taken lightly. If it is not given due attention and care, it can become a chronic headache. Given below are a few things you should keep in mind while getting an education loan to prevent any unprecedented trouble.
Borrowing more than needed
The maximum amount of loan you can draw from a bank ranges from 20 lakhs to 40 lakhs. That, however, in no way means that you should borrow such a large sum. The more money you take from the bank, the more you’ll have to return in terms of interest. You don’t need extra money only to pay it back with interest. Therefore, make it a point to sit down and precisely calculate your net education expense before you decide how much you’re going to borrow.
The temptation for luxury
Once you have the money in your hand, it’s not easy to resist yourself from spending it. But your education loan is for educational purposes only, and it is something you should imbibe in your mind before applying for the loan. Try finding a part-time job to fund your non-academic expenditure instead of covering your living expenses with the loan.
Lack of research
Diving headlong towards the first offer that presents itself is one of the worst mistakes you can make while applying for an education loan. Research the market thoroughly, and then research some more. Compare the interest rates among sources and go with the one that leads to the smallest repayment amount.
Preferring long-term repayment over short-term repayment
Long-term repayment involves paying a small installment every month over a long duration, whereas short-term repayment involves paying the maximum monthly installment the student can afford, which clears the debt quicker. Students often tend to go for the former because it’s more comfortable. However, they fail to notice that it also involves repaying a substantially larger sum of money because of the accumulation of interest. Whenever you can, prefer short-term repayment over long-term repayment.
Not reading the fine print
The TL:DR (Too Long: Didn’t Read) trend isn’t limited to online blogs. Many students end up buying an expensive education loan without reading the fine print on the document, only to find out later that it doesn’t cover their necessary expenses. Another hurdle in the way is that many students who apply for the loan aren’t well versed in financial matters. If it happens to be the case, one must seek out professional advice. Even if it costs you a little, it will end up saving you a lot in the long run.