Quick Guide: Student Loan Repayment

Posted In education loan On October 15, 2018
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Once you complete your college, among other responsibilities the responsibility of replaying your education loan falls on you. The repayment needs strategical financial planning above all, be clear about the repayment mode before availing the loan. Here’s all the information you need about repaying your education loan.

Repayment commencement-The repayment of the loancommences one year after the course completion or 6 months after securing a job, whichever is earlier. But, the interest is charged even during the study period and moratorium period. The interest charged during the study period is Simple Interest whereas the one charged after this period is Compound Interest.

Types of repayment methods- There are usually 3 modes of repayment: -

  • SIMPLE INTEREST: Here, the borrower continues paying the Simple Interest during his study period. Hence, Simple Interest doesn’t keep on adding to the Principal amount and thus, the EMI is only the Principal amount+ Compound Interest.

  • PARTIAL SIMPLE INTEREST: In this mode, the borrower pays only a portion of the simple interest and the remaining interest keeps on adding to the principal amount. Hence, the compound interest is ultimately charged on the principal amount as well as the remaining simple interest. This option is provided to students with weak financial background who are unable to pay the simple interest during their course period.

  • EMI: In this case, the payment starts one month after the disbursement of the loan amount. In this repayment method, the co-signer is expected to repay the loan since the repayment is made during the course period, making it impossible for students to pay for the loan themselves.

Repayment process- The process does not require you to do much, as the bank has your account details, the EMI amount will be deducted from your account automatically on monthly basis.

Repayment tenure- The repayment tenure is usually for 5-7 years but it can be extended to 10-15 years if you have a genuine reason for extending the loan.

Advantage of repaying early- It is advisable to start paying your interest from the commencement of the loanto reduce your EMIs to a large extent. Many banks also give a 1 percent interest concession to those who repay the interest debited during the moratorium period.

Problem in repayment- If you are unable to repay, you can get in a lot of trouble. The bank can seize your property, it will ruin your CIBIL score and youcan get in legal trouble. After all this, you still have to repay the loan. If you are unable to repay there are a few some dos and don’ts that you should not ignore.

  • Do not try to avoid communication with your bank. If you have a genuine reason for not being able to repay, take your bank’s branch manager into confidence and share the reason for not paying the loan back. If the bank think it is an authentic reason they may restructure your loan and allow you to pay the lower EMI. The maximum loan repayment tenure can be increased up to 10 years for a loan amount lower than 7.5 lacs and 15 years for an amount more than 7.5 lacs.

  • You can ask for a deferment period. Deferments allow you to stop making payments for a certain period of time if you have a genuine reason that can show you qualify. For instance, you may be able to get a deferment if you can show economic hardship, are returning to school, are unemployed, or looking for a job.

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