Some Common Myths Regarding Study Loan
The education loan market was worth around Rs.93,000 crore, as per a September 2020 report. In the same year, study loans saw a significant drop, thanks to the overarching economic slump. While such credit is often necessary when one is looking to pursue a costly higher education, a large section of individuals is still unaware of the intricacies regarding education loans.
The following misconceptions regarding study loans may confuse borrowers, in turn, leading to excessive debt, which they are unable to repay.
Myth: No interest accrual till repayment begins
Even though most lenders provide a moratorium when it comes to education loan repayment, do not think that such institutions simply waive off any interest for this period. Such interest charges continue to add up to the overall principle, which eventually increases your monthly installments after the repayment term begins.
A loan against property for an education loan, on the other hand, does not have such confusing terms and conditions. In this type of credit, repayment starts immediately and the interest rate tends to be minimal. Thus, borrowers should undertake a detailed loan against property vs education loan comparison to know which is better suited to them.
Myth: Education loan allows borrowers to claim tax benefits
Unlike most other loans, study loans do not allow borrowers to avail any income tax benefits. Thus, even when you bear a significant amount each month as EMIs for such debt, you cannot claim any reprieve when it comes to servicing your annual tax liabilities.
This is another area, where a loan against property is more beneficial when funding higher education. Such a mortgage debt allows borrowers to claim tax benefits under two specific sections of the ITA, namely, Section 37(1) and Section 24. Still, one would need to meet specific criteria to avail of such benefits.
Understanding the intricacies of a loan against property for education can aid a potential borrower to understand whether it is perfect for their particular needs and situations.
Myth: EMIs for study loans remain constant
Installments for your education loan depend on certain external factors, including the repo rate. If the Reserve Bank of India decides to hike this particular external benchmarking rate, lenders would also need to adjust their interest rates similarly. Thus, students opting for such loans need to stay financially prepared to service increased EMIs during their repayment tenor.
Evidently, education loans are misunderstood products since they tend to operate differently when compared to other credit options. Combined with a stringent documentation process, these loans can be difficult to for, especially if you do not meet the specific eligibility parameters.
A LAP is often a preferred alternative, especially for individuals owning immovable property. The secured nature of such debt benefits borrowers significantly, reducing financial strain considerably.
The most important benefit is that mortgage loan rates tend to be reasonable and affordable when compared to a standard education loan. This helps to keep monthly repayment liabilities under check.
Also, a significant quantum is available to eligible borrowers as loans against property. However, be sure to utilize a LAP EMI calculator beforehand to check whether the principal you are opting for is easily repayable as per your monthly income. Some lenders extend up to Rs.3.5 crore as principal on such credit.
Additionally, they provide pre-approved offers on loans against property and home loans to reduce credit processing times. You can check your pre-approved offer by submitting a few details only.
Thus, taking advantage of attractive property loan interest rates could be a wiser decision rather than opting for an education loan when financing expensive courses. In the long term, such a decision could help you meet your monthly liabilities without creating excessive strain.
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