In an interview to CNBC-TV18, Pankaj Mathpal of Optima Money Managers discussed about various things one should remember while applying for a education loan.
Below is a verbatim transcript of the interview:
Q: It is that time of the year when students begin heading out for higher studies. For those, looking at last minute education loans what are the points to be kept in mind when they apply?
A: First important point is the rate of interest. It varies from bank to bank and amount of loan. So one should compare rate of interest and go for the cheapest one.
Second thing is tenure of loan. Banks may offer the investor up to 15 years of term. If one thinks from the income tax planning perspective then one can claim deduction towards the payment of interest maximum for eight years. So, one should try to keep the tenure of loan only for eight years and one's payment starts from sixth month after getting the job or one year from the end of one's study. So basically people should go for eight-year tenure that is important.
Third thing is that loans should be taken in the name of student only so that student can claim that benefit under Section 80E. If parents take loan in their name then students cannot claim that benefit.
Another important point, sometime if loan amount is big, bank may ask to assign one life insurance policy in favour of bank. So if the borrower dies during the term of the loan or loan is not fully repaid, in such case that benefit under the policy can be claimed by the bank.
There is nothing wrong in assigning policy, but make sure to assign only a term insurance policy. Sometimes when these banks grant loan, in their interest they try to sell costly policies and try to assign that policy in favour of bank. So try to avoid that.
Bank may offer that the premium will be included in the loan amount and will be amortized during a period of time. But that will not be a good idea, so buy an economical policy, a term insurance policy and assign that policy only in case of bank if bank is asking for that.
These are few things one needs to remember while applying for loan. Many times the financial institution want to exploit the borrower because he is in need.
SMS Q: Raj Kishore from Kanpur wants to invest Rs 6,000 per month towards his child's education plan. He specifies that his goal is to collect Rs 25 lakhs at the end of 20 years and he would like to inquire about the investment options he has?
A: With Rs 6,000 per month, he can easily accumulate 25 lakh in 20 years even if he gets only 4 percent interest. So with Rs 6,000, as per my calculation, if he gets around 12 percent he can accumulate Rs 55 lakhs.
I am suggesting him three schemes in mutual fund (MF). One is UTI Opportunities Fund. He can invest Rs 3,000 per month in that, Rs 2,000 per month through Systematic Investment Plan (SIP) he can invest in IDFC Dynamic Bond Fund and Rs 1,000 per month in Reliance Gold Savings Fund. If he can invest through SIP in these schemes he can easily accumulate Rs 25 lakhs or more than that.