ABC’s of Education loan Terminology

Education Loan

Well well well!!! We all are familiar with daily used terms and words but what about the most difficult words or financial terminologies and jargon that are normally used while talking about Education Loan documents.

It makes you aware of the product you are being offered, and the many advantages and disadvantages of the education loan that are associated with it.

Another important piece of advice is to spend time to understand and compare various Education loans offered by different banks and financial institutions so that you can choose the best.

Some common term used in the education loan documents are mentioned below:

Applicant/Borrower
⦁ The student who intends to apply for the loan

Co-borrower/Co-applicant 
⦁ He/she is the guarantor (He can be a parent, legal guardian or spouse (if married) of the applicant.)
⦁ He/she must have a steady source of income and a good credit history for loan approval.
⦁ Brother, sister, maternal/paternal uncle, aunty can be an additional co-borrower.

Collateral 
⦁ Any asset, tangible or intangible, that is considered against the loan is known as collateral security.
⦁ Residential property, fixed deposit, non-agricultural land, and life insurance are the most common types of collateral

Cost of Education 
⦁ It consists of tuition fees, exam and library fees, travel fare for foreign education, cost of books and uniforms, living expenses in a foreign country, and any other cost the lender deems necessary for the completion of the course.
⦁ Some banks offer 100% cost coverage; some banks only cover a part of it.
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Credit Worthiness 
⦁ A valuation of your profile and credit history is performed by the lending bank or financial institution.
⦁ This is done to determine your loan eligibility and the ability to repay the loan.
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Default 
⦁ It is the inability to repay the loan according to the terms and conditions agreed upon at the time of loan approval and may lead to legal action.

Disbursement 
⦁ It is the payment made by the bank or financial institution to the applicant’s college/university/institute as a fee.

EMI (Equated Monthly Instalment)
⦁ EMI is the amount that is paid every month to the bank against repayment of the loan.
⦁ It normally begins once the moratorium period is over.

Fixed ROI 
⦁ When the EMI amount is fixed as the interest rate and does not change during the tenure of the loan

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Floating ROI 
⦁ When the EMI amount is not fixed since the Rate Of Interest changes with the increase or decrease in interest rates in the market.

Interest Amount 
⦁ It is the interest paid on the principal amount of the loan as per the rate of interest.
⦁ This interest accumulates till the end of the moratorium period, i.e. till the time repayment of the loan begins.
⦁ The amount repaid to the bank at the end of the loan tenure is the sum of the principal and interest amount.

Margin Money 
⦁ It is the part of the education cost that has to be borne by the borrower while the rest is paid by the bank

Moratorium Period or Grace Period
⦁ This is the period during which the borrower is not required to make any repayments towards the loan.
⦁ EMIs usually begin at the end of the moratorium period.
⦁ It usually lasts from six months to one year after the completion of the course.
⦁ Some banks refer to this period as the Grace Period.
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Principal Amount
⦁ It is the actual loan amount taken by the borrower.

Processing Fee 
⦁ It is a one-time loan-processing fee charged by lending banks and financial institutions (this may vary from bank to bank)

Repayment Schedule 
⦁ It is a detailed document mentioning the date of commencement of repayment, the amount of principal and interest paid with each EMI, the mode of payment, and the number of EMIs to be paid until the end of the loan tenure.

ROI (Rate of Interest)
⦁ It is the rate at which the interest amount is calculated
⦁ It can be of two types – Fixed and Floating.

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Tax Rebate 
⦁ Education Loans taken from gazetted banks and financial institutions are eligible for deductions on the interest part of the education loan under Section 80E of the Income Tax Act of India, 1961.
⦁ Deductions can be claimed for 8 consecutive years including the year in which the loan is taken.

Tenure
⦁ The loan tenure is the period from the date of the first disbursement to the date when the last EMI is made and the loan is fully repaid.

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