Whether you’ve applied to your dream universities or you already have your admit; it’s time to think about funding your studies. If you’re considering an educational loan, and have limited knowledge about education loan terms, these are 11 important terms you must know before you begin the search for an international study loan lender. Skipping this step could cost you thousands of dollars and lock you into a long-term loan that doesn’t work for you. So keep reading, as we make you explore student loan terms, and all things related!
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11 Important Loan Terms
Let us now straightaway jump to understanding the 11 most important education loan terms, that are of an utmost importance to you, as a study abroad aspirant:
So, what is collateral in education loan? A collateral is a physical asset demanded by the lender as security, to get gold of a loan amount. Collateral can be seized if you fail to make your loan repayments, so you’ll need to pay close attention to the requirements.
In some countries, like India, collateral is typically requested by loan providers and the value of the collateral may be significantly higher than the loan amount. In the US and UK, education loans don’t usually require collateral.
Cross-border, international lenders, such as Prodigy Finance, also don’t require collateral, and offer what is non collateral education loan.
What is a co-signer? A cosigner is someone who signs your loan with you, making them responsible for loan repayments, if you default. While sometimes called co-borrower in India, this term means something else in countries like the US and UK.
Providing your lender with the means to recoup their money from someone if you don’t make your repayments is usually linked to lower interest rates from local banks.In India, it’s sometimes possible to obtain a loan without collateral, provided you have a strong co-signer.
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What is Co-borrower?
A co-borrower is equivalent to a co-signer, i.e. someone who signs your loan with you, making them responsible for loan repayments, if you default.
Early Repayment Penalties
Early repayment penalties are nothing but charges or fees you must pay if you choose to repay your loan early. You may also see the term prepayment penalties. This allows lenders to recoup some of the money they expected to earn through interest.
Internationally, you won’t find too many banks have early repayment penalties. But, it does happen, and you should know about these charges in advance.
There are quite a number of fees attached to a loan, such as currency conversion fees, insurance and processing or admin fees. Some lenders are entirely transparent about fees (especially in countries where APR is mandated), whereas others aren’t - and you need to be aware of what you’re being charged and when.
How and when fees are charged can vary widely between lenders. Always do what you must to fully understand the fees attached to your loan.
What is moratorium period in education loan? A moratorium period is the time when you aren’t expected to make loan payments. During this time, interest may still be applied to your loan. Understanding the terms of your moratorium period and the way interest is applied to your account may help you decide between loans. It’ll also give you time to work out your post-graduation budget. The interest applied to your loan during your moratorium period is usually compounded simply.
What is Moratorium Period and how long does it last?
A moratorium period is a period wherein a borrower is not expected to make loan payments.Typically, moratorium periods last up to six months after course completion for full-time students.
What is Grace Period?
Moratorium Period is also known by the term grace period in countries such as US, Canada, etc.
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Loan Confirmation Letter or Sanction Letter
A sanction letter is a document from your lender which shows how much money you’re borrowing; it’s needed to prove to your university and the relevant immigration officials that you’re able to pay. Without this document, you may be unable to secure your spot or your study visa. You’ll want to get your hands on this document as soon as possible.
Some lenders also charge a fee to release your loan confirmation letter, but that’s not universal.
Loan Tenure or Repayment Cycle
What is Loan Tenure? A loan tenure or repayment cycle is the total length of time you have to repay your loan, beginning at the end of your grace period and ending with your last payment. The longer the loan tenure, the lower your interest rate, but the more you’ll pay over that time. The reverse is true for shorter loan tenures.
There’s no international loan tenure norm, but you should expect to find options ranging between seven and twenty years.
Tip: Look for lenders that offer flexible terms so you can find a timeframe that works for you.
Sometimes lenders require borrowers to pay them a portion of the total loan amount disbursed as the loan may only cover a portion of the full loan amount. The money paid to the bank before being returned as part of the loan is known as margin money in India.
If you need to pay into your lender to secure your loan, you’ll need to know quickly how much this is, when you’ll need to pay it and what fees or interest is attached to this amount. Margin money is most commonly found in India; it’s rare in countries like the US and UK.
Monthly Payments or EMI
What is monthly payments? You may know this as Estimated Monthly Instalments (EMI) and it refers to the amount you’ll pay each month after your grace period ends. Each borrower has a unique monthly payment (based on the amount they’ve borrowed as well as loan tenure). Also, with a variable interest rate, the actual amount due will vary from month to month.
There’s no norm as it’s completely personalised (and will definitely fluctuate if you have a loan with a variable interest rate.
Variable Interest Rates
What is variable interest rates? These are interest rate fluctuations alongside the market rather than remaining fixed throughout your loan tenure. When working with variable interest rates, your minimum monthly due will change according to the changes in interest rates.
Annual Percentage Rate (APR)
What is annual percentage rate? Annual percentage rate or APR, is expressed as a percentage and it includes your interest rate plus all the fees and costs associated with your loan. That means it’s always higher than your interest rate.
APR is used instead of interest rates as it shows you the effect of fees on the cost of your loan, as well as your interest rate. It’s far more accurate than interest rates alone.
Eligibility Criteria to Apply for an Education Loan
Generally an age group must fall within the bracket of 18 to 35 years during student loan application. He/she must be undergoing a graduate/postgraduate degree or a PG diploma. The applicant also must have a secured admission in a college or university affiliated by UGC, AICTE, etc.
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How to Find the Right Education Loan?
Now that you’ve got the lingo down, it’s time to start looking for a loan. Because this is a big financial decision which impacts your future, it’s critical to explore every available option. That means you should check out:
- Local banks like SBI, ICICI Bank, HDFC, etc
- Lenders in your host country
- International loan providers such as Prodigy Finance
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We hope that this blog helped you understand various terms associated with an education loan. An education loan can be really easy to get hold of, provided you fulfil all the relevant eligibility criteria and submit all the required documents. Moreover, you can also connect with our Yocket Loan Assistance, to know even the minutest details related to applying for an education loan