Important terms related to loan you should know from your lender

Many study abroad applicants do their research regarding the university application process very well but sometimes tend to not know the terms involved in loans [ Before writing this article, I was one of them :) ]. Here is a quick checklist of the terms that you should be aware of if you have applied for a loan or are planning to secure a loan:

1. Collateral: Any property (house, gold, etc) which can be shown to the bank to secure a loan.
Generally, collateral loans have less rates of interest than non-collateral loans.
Non-collateral loans are based on the academic profiles of the student and the income proof of the co-applicant.

Indian national public banks like Bank of Baroda, and Canara bank give collateral educational loans.

2. Interest rate: floating(variable rates) or fixed: A floating interest rate is one that changes periodically, as opposed to a fixed (or unchanging) interest rate.

3. Co-signer / Co-applicant: A cosigner is someone who signs your loan with you, making them responsible for loan repayments if you default(if you can't pay the loan to the bank). They are sometimes called co-borrower / co-obligant in India.

4. Early Repayment Penalties: Charges or fees you must pay if you choose to repay your entire loan amount earlier than intended.

5. Other Fees: There are quite a number of fees attached to a loan, such as currency conversion fees, processing, or admin fees.

6. Insurance: Insurance charges may be added separately. It’s always better to get your loan insured. If you are in a tragic accident or god forbid death, the loan amount is entirely paid by the insurance company.

7. Moratorium Period / Grace period: The time when you aren’t expected to make loan payments. During this time, interest may still be applied to your loan.

8. Loan Confirmation Letter or Sanction Letter: A sanction letter is a document from your lender which shows how much money you’re borrowing. Some lenders also charge a fee to release your loan confirmation letter.

9. 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.

10. Margin Money: Public banks require a margin amount to be set. Sometimes lenders require borrowers to pay 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. Not all lenders have this. Example: Loan of 50 lacs and margin of 10%. The lender will give 45 lacs and the student will provide 5 lacs.
Canara bank has a margin of 15 %.

11. EMI: The amount you’ll pay each month after your grace period ends.

12. APR: Annual percentage rate = Interest rate + all additional fees

13. Tax Benefits on Education Loan: The interest you pay on your student loan can be deducted under Section 80E of the Income Tax Act of 1961. This advantage is only available to individual borrowers and is only offered for the purpose of higher education. It's important to remember that the tax deduction only applies to the interest portion of the EMI, not the principle. There is, however, no limit to how many times you can claim this benefit. This benefit is accessible for 8 years from the day you started repaying your loan or until the interest component is paid off, whichever comes first.

14. Disbursement process: In most cases, the loan institution pays the tuition directly to the university after the borrower sends proof of tuition to the loan institution. If you are planning to get the living expenses from the bank, then the loan institution will transfer the funds to the university and the university will transfer them to you. As the disbursement process is different for each bank, it's better to confirm this process from your loan institution.

15. Contact: You can call the customer care number of these loan institutions and connect. Or you can log in on the official website and create an account and an agent will be assigned to you.

Note that not all banks provide both collateral and non-collateral loans. If you want a review of some of the lenders that provide an international education loan, I have added the article links in the comment section below.

Hope you find this useful and Go Green !!!

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