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Last Updated : May 07, 2016 02:05 PM IST | Source: Moneycontrol.com

Why you should pay back education loan on time

Education loan repayment offers tax benefit under section 80E of Income Tax Act. Defaulting on education loan leads to a lower credit score.


Adhil Shetty
BankBazaar.com

More than 50% students who pursue higher education opt for loans today. Such loans ensure that financial troubles don't hamper the growth of meritorious students.

Though parents counsel their wards in choosing the right loan, in most cases, the onus of repayment falls on the student. Many youngsters are not doing justice to their loans, finances and repayment. And the result? There has been a constant rise in education loan defaults. While banks are forced to bear the brunt of such loan defaults due to some new reforms, the borrower often gets into a deeper trouble which he may not be realising, owing to a poor CIBIL score for defaulting.

If you have taken an education loan, make sure it is repaid on time to avoid any complications. Repaying loans on time has many advantages. Here is a look at the reasons:

Know Your Waiver Period: Usually, banks wait for a certain period till you find a job before asking you to start repaying your loan. The period from the time of completion of the course till the time the banks start expecting repayment of the loan is known as moratorium or waiver period.

This period varies from bank to bank. Remember that banks are expected to earn on every loan they offer and thus they start charging interest on loans immediately and not wait till the waiver period ends.

Don’t Wait for the Right High-paying Job: Many freshers commit the cardinal sin of waiting for the right job or a high-paying job before repaying the loan. Remember that the education loan is accumulating interest and the earlier you repay the loan, the lesser would be the interest you end up paying on the loan.

Understanding Education Loans and Tax Benefits:  Education loan offers a tax deduction on the interest paid in the financial year under Section 80E of the IT Act. 

Defaulting on an Education Loan can be Disastrous for your CIBIL Score: Borrowing is easy but repayment requires constant financial planning. Many education loans end up as defaults since loan borrowers do not pay significant importance to the repayment. Any default can directly impact your CIBIL score. It is essential to make sure you never let your education loan to go down the NPA route even if it means controlling your other financial investments for the time.

Thinking of Prepayment of Your Education Loan? Read this first:  
Some banks charge a prepayment penalty. Since education loans keep on accumulating interest, it may be a good idea to consider prepayment for the loan and get a clean slate as soon as possible. However, before you think of prepaying your education loan make sure to calculate the tradeoff between paying interest on education loans vis-a- vis the tax benefits offered under Section 80E.

BankBazaar.com  is an online marketplace where you can instantly get the lowest loan rates , compare and apply online for your personal loan , home loan ,  car loan  and  credit card  from India's leading banks and NBFCs.



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First Published on Feb 2, 2015 06:07 pm
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