An education loan helps stabilize your finances when opting for higher education. Its repayment process is structured differently from other loans, such as a home loan or a personal loan. Banks have a provision of a waiting period (technically known as moratorium) after which you start to pay off the principal and interest amounts of the loan. The moratorium period extends from one year after the completion of the course or six months after getting a job, whichever is earlier.
You should plan your repayment even before it commences, so that even if you have to go through a bad phase, you don’t fall behind on your EMI. Let’s take a look at some of the features that can help ease your education loan repayment.
Interest amount repayment– It is always better to start early. You can begin paying the interest amount while pursuing your education. At this time, the interest charged is simple interest, which subsequently lowers the burden of repayment. From hereafter, the EMI will be restricted to principal amount. Additionally, your bank might also offer an interest subsidy of up to 1%, if you continue to regularly pay the interest amount during your study period.
Loan tenure extension– Generally, the repayment period for an education loan is 5–7 years, but you can request for an extension if you are in a difficult situation. Consequently, your repayment period will increase to 10–15 years and your EMI will decrease. However, the bank will grant you the extension only if they believe you will soon start earning and that the crisis situation is temporary.
Do note, you will end up paying a higher interest amount owing to the increased loan time period.
Moratorium period extension– You can get the moratorium period extended by an additional six months to one year. All you need to do is convince the bank on why you don’t have a job at present. It also helps if you have a good credit history.
Top-up loan– If you plan to study further immediately after the current course’s completion, you can opt for a top-up loan. This additional loan can delay your repayment. But, you would have to pay a comparatively higher interest amount later.
All in all, you need to keep your bank informed about repayment issues and if there will be delay in the payment process. If you fail to do so, your credit score is likely to take a hit. However, these above four techniques can allow you to extend the loan duration such that you can repay the loan at your own pace.