5 questions to ask yourself before you take a student loan.

Student loans are a big decision, they involve a lot of money and going into debt is something you don’t want to take lightly. However, in the long run and if handled properly, taking an education loan is sure to pan out extremely well for you. They enable you to pursue your dream education and ensure all you funding needs are met so you can focus fully on your studies instead of arranging monies every now and then.

Here are some questions to ask yourself before you apply for the loan – put enough thought into them and you are sure to come out of the borrowing experience smiling and successful.

1. Bank or NBFC?
The first question you want to ask yourself is whether you want to borrow from a bank or an NBFC. Banks have lower rates but have many terms to satisfy, especially those in the public sector. They are sure to ask you for collateral if you loan amount crosses Rs. 7.5 and they will probably ask you to pay a certain amount of the total cost yourself!

Non-banking finance companies on the other hand will provide more lenient financing, albeit, at the cost of a slightly higher interest rate. They will offer 100% finance, collateral-free financing and offer loans with no upper limit.

2. How much do you require?
The next question is of paramount importance – how much money do you need? Ask for too much and you might end up paying interest and processing fees on an amount you do not need. Worse still, your loan application might be rejected. Ask for too little and you’ll have to handle financial issues along with your education.

3. How much time do you need to repay the loan?
Most lenders will offer 10 years to repay the loan. Note that, the longer you take to repay the loan, the more interest you pay. But the longer the tenure, the smaller the EMIs are. On the contrary, shorter tenures will entail lower interest amounts with higher EMI amounts. This is something you need to ask yourself and decide accordingly.

4. Can you afford the loan?
Before you take the student loan, you need to check if you can afford it. Just log onto any lender’s website and find the ‘education loan EMI calculator’. This will help you determine the EMIs based on the loan amount, tenure and interest rate applicable. Check if the EMI provide is something you can afford given the work opportunities you have in mind.

5. Should I prepay the loan?
Once you’ve taken the loan and begin the repayment process, ask yourself if you are in the position to repay the loan. If yes, then you should redirect bonuses, increments and any other such windfall gains toward prepaying your loan. It will get you out of debt quicker and ensure you pay lower interest amounts.

Hope this has been helpful, good luck and all the best, study hard