More than 50% students who pursue higher education go for education loans today. Thanks to the hiking education costs! Education loans make sure that lack of finances does not hamper the growth of meritorious students. But another fact in connection with education loans is that your parents are there to guide you for taking the right loan, but in most cases repayment is your own head ache. No wonder, many youngsters are not doing justice to their loans and finances with a careful planning of finances and repayment. And the result? There has been a constant rise in education loan defaults. While banks are forced to bear the brunt of such loan defaults due to some new reforms the borrower often gets into a deeper trouble which he may not be realizing, owing to a poor CIBIL score for defaulting.
If you have taken an education loan for yourself or for any of your children, make sure that the loan is repaid out on time to avoid any such complications. While defaulting on the loan has its perils, repaying the loan on time has its own set of advantages. Here is a look at the reasons why repayment of your education loan on time is a good idea.
Know your Waiver Period: If you have taken an education loan it is important to know the loan waiver period. Banks do not expect you to start repayment of the loan immediately and are ready to wait for a certain period till you find a find a job. The period from the time of completion of the course till the time the banks start expecting repayment of the loan is known as moratorium or waiver period.
The waiver period varies from bank to bank and you are better off checking with your bank about the waiver period before planning your education loan repayment. While a bank offering waiver period is a good idea, remember, banks are expected to earn of each loan they offer and they start charging the interest on education loans immediately and not wait till the waiver period ends.
Many people who are in a position to repay their education loan often wait for the waiver period before starting out on their repayment. Since banks are charging interest, it is not a good idea to wait for the waiver period to end. Make sure that you start your education loan repayment as soon as possible even if that means starting repayment before the completion of the official waiver period.
Don’t Wait for the Right High Paying Job: So now that you have finished your education and have got a job up front, which is not exactly your dream job. Many fresh job seekers who have recently passed out from college and are getting into their jobs commit the cardinal sin of waiting for the right job or a high paying job before repaying the education loan. Remember education loan is accumulating interest and the earlier you repay the loan, the lesser would be the interest you end up paying on the loan.
Understanding Education Loans and Tax Benefits: Education loans not only helps taking care of your educational expenses they also come with an additional tax benefit. Education loan offers a tax deduction on the interest paid in the financial year under Section 80 E of the income tax act. So make use of it to save tax in the initial years of your career.
Defaulting on an Education Loan can be Disastrous for your CIBIL Score: Borrowing is easy but repayment requires constant financial planning. Many education loans end up as defaults since loan borrowers do not pay significant importance to the repayment. Any defaults on education loan repayment can directly impact your CIBIL score. Of course, as life moves on you will have to take other loans like a car loan, home loans etc. But a low CIBIL score makes you virtually have absolutely lesser chance. It is therefore essential to make sure you never let your education loan to go down the NPA route even if it means controlling your other financial investments for the time.