Effective Education Loan Repayment Strategies: Save Big and Reduce Financial Stress

Abroad education loans have brought a substantial change in the way students from humble financial backgrounds think of studying abroad. Now there are several lenders from the Public to the Private sector who readily give both secured and unsecured loans to study abroad. However, abroad education loans are pretty pricey and if not managed properly, they can take a toll on your finances. Students going abroad for education plan their loans in a way that they will be able to pay after getting the job. The salaries are certainly high when you have a job at a university abroad but the loan amounts are high too. So, one needs to strategically plan their education loan repayment so that the financial burden post-completion of the course can be eased.

There are several factors involved in the repayment of an education loan that you should consider before moving ahead with a loan. One must understand the education loan repayment rules comprehensively so that one can accordingly plan the interest payment and payment post the moratorium period. Several tools are available online that help borrowers in getting a clear picture of the repayment of loans.

Best Time to Start the Loan Repayment 

The time to start the loan repayment pivots on the financial capability of the borrower, and it varies from one individual to another. Banks will provide you with different options which might include the start of repayment right at the beginning of the studies or after the completion of studies. There are options available to start the interest payment right at the start of studies, and several other options are provided by the lenders depending on the need and capability of the borrower.

You can choose any plan depending on your financial strength. Earlier there weren’t many options available with students but now you can easily use education loan repayment calculators available online. These calculators will give you pretty much every information from the disbursement period of the loan to the grace period. The calculators give customized results that will help you in making an informed decision in choosing the best education loan repayment scheme.

Moratorium Period in Education Loan Repayment 

The moratorium period refers to the time that is given to the students to start the repayment of the loan process after completion of the degree. The repayment holiday is given to students so that they can settle down, and then start the repayment process. It is an important factor, and there are different options provided by lenders to borrowers. There can be multiple scenarios with the moratorium period. Some lenders charge full interest during the moratorium period while in some cases they only charge a partial rate of interest.

However, the borrowers should note that there can’t be any EMI payment in the moratorium period. Banks or NBFCs can have different policies on interest payment (either full or partial) but this doesn’t affect the education loan repayment period. The moratorium period varies from six months to twelve months. Usually, Public Sector Banks and Private Banks have longer moratorium periods than NBFCs. PSBs and Private banks mostly give a year moratorium period, and NBFCs, have a relatively shorter repayment holiday of six months.

Right Time to Start the Loan Repayment Process

Frankly speaking, there is no definition of the right time in this context. The moment you feel that you can start the repayment of the loan, just start the process. There is no need to use the entire moratorium period, and then start the repayment process. Hold your other expenses for a while, and just start with the loan repayment. The reason why you should start the process at the earliest is that the moratorium period doesn’t come for free, and interest is charged even in that period.
 

Some lenders might not charge but others do. It simply means that the loan amount is intact, and you are paying too, so it’s in the best interest of the borrowers to reduce the overall cost of the loan by starting early repayment. And the interest rates on abroad education loans are high, so it’s better to start the EMI as soon as you have the financial capability to take care of your expenses. Starting early repayment also helps you in getting a good credit score right from the beginning of your professional life, and will be of immense help in future borrowings.

Methods of Education Loan Repayment

The students need to understand the available methods of loan repayment. Once you have a clear understanding of these methods, you will be in a much better position to take the call on choosing the perfect loan repayment method. 

Education Loan Payment through EMIs:

It is perhaps the most known method wherein you will have to pay a certain amount every month. This amount will comprise both the principal loan amount and the interest accrued on the loan amount. EMIs are fixed amounts that are decided right at the time of loan sanction. It can be adjusted depending on the job prospects, and earnings post-completion of studies. Since the interest rates remain the same irrespective of the size of the EMI, it’s better to choose higher EMIs. It will help you in completing the loan repayment faster. 

Education Loan Part-Payment:

If you think you can pay a lump-sum amount to the bank that is at least four or five times the EMI then education loan part-payment is useful for you. It is a payment method wherein you can do bulk payments at certain intervals, and thus complete the loan repayment way before the usual time period. It helps students in reducing the overall cost of loans.

However, one must note that not all banks give this option. Even those lenders who allow it put some conditions on it before allowing part-payments. Lenders usually allow part-payments up to a certain limit, and that too on a processing charge. The exact details on part-payment must be confirmed with the respective bank, and you should opt only if you have the capability of paying high amounts. 

Pre-Payment or Foreclosure of Education Loans:

It is an overly cost-saving technique but needs very strong financial capability. This payment option gives you the chance to pay the entire loan amount in one go, and save the entire amount that would have gone into interest payments. The interest payments constitute a considerably big chunk of the entire payment, so the pre-payment will help you in saving a lot. The banking norms have been revised and barring a couple of lenders all of them provide the option of prepayment. However, this doesn’t come for free, and you will have to pay a certain amount as a processing fee. However, the processing fees are way less than the interest you would have paid over the years.

Choosing the Repayment Period 

Another crucial decision that has a considerable effect on the entire loan repayment amount is the time period over which you stretch the loan. The longer the repayment period, the costlier will be the loan. It is very important to complete the loan repayment process by the earliest so that you can make considerable savings in interest payment. Usually, Public Sector Banks and Private banks give a longer repayment period than NBFCs and international lenders. But a prudent choice will be to initiate the payment at the earliest and choose a loan repayment method that reduces the repayment period.

Strategising the Education Loan Repayment

Strategising always helps in dispersing the effect of consequences. Whenever a student takes a loan, the repayment process will certainly start post-completion of the studies. It is a monetary burden for sure but its effects can be marginalised by planning ahead of the time when the repayment starts. There are certain steps that a student should follow to make the loan repayment process smooth, and avoid any unwarranted financial shock.
 

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  The first and foremost thing is to look for a loan that is available at the least cost of interest. 
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  After selecting the loan, always calculate the EMIs, and then juxtapose it with your future income. There are many online tools available for calculating EMI and future incomes. 
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  Calculate the EMI while considering the time it will take to complete the entire loan amount repayment. The smaller the EMIs, the higher will be the cost of the loan. 
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  Explore your finances and check if you can do the prepayment, as it will help you a lot in saving the interest amount that you will pay over the years. 
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  Also, confirm the processing charge in case of prepayment.
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  Once you are certain about the EMI and mode of repayment, things become smooth, and it somewhat gives a clear picture of the loan repayment process.

Education loan repayment is a long process and it takes around seven to twelve years to complete depending on the loan amount, and EMIs. It is very important to consider all the factors before making the final call on the loan. Once a loan is sanctioned, it becomes very difficult to make amends to it, and thus it is advised you take the help of fintech companies working in this space that will help you in chalking the best strategy for loan repayment.

Frequently Asked Questions