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A trap for education loan seeker - DiFin

Taking Education Loan for MBA – Tips to Avoid Falling into Education Loan Trap

July 25, 2018By Admin

Education loan is the best bet for students wanting to pursue higher studies but are unable to afford the tuition fee. The increasing on-performing assets of bank clearly show the picture that many students are struggling to repay their education loans. So, if you have already secured an offer letter for your MBA abroad and planning to take an education loan, you need to be sure that you do not fall prey to the loan trap and end up as a defaulter. Being a defaulter does not only spoil your reputation with the bank but also ruins your credit score, making it difficult to take a loan in future.

While taking an education loan for your MBA is a decision worth taking, but it is something that should be given proper thought. Here are some tips that can save you from falling into the never ending trap of education loans:

  1. Be cautious

Sometimes most of us end up taking a loan for an amount that would take years of our life to repay. No matter how alluring the bank scheme may be, it is important that you watch your steps and give a good thought of going ahead with your loan.

  1. Compare offers from different banks

MBA from a reputed institution does not come cheap. So, find the banks that will cater to your requirement of loans. If you need a loan for 15 lakhs and the bank has a capping of 12 lakh, you will need to arrange another lakh from a different source leading to multiple financial burdens.

  1. Choose a bank that does not ask for margins

There are numerous banks that do not ask for margins amount on education loans for MBA. So, visit the bank and find out about their updated schemes. Many banks offer margins as high as 5 or 10% which further increases your financial burden.

  1. Interest rates are important

This is the most important factor. Interest rate is actually the cost of your education loan.  It is suggested that you compare the rates offered by different banks and choose a low interest education loan.

  1. Subsequent interest rate

Nearly all banks charge interest on floating interest rates which means if the base rate changes, the applied interest rate will also vary. So, find out from the banks more details about rate fluctuations.

  1. Did you know a prior work experience can reduce the interest rate?

Yes, that is true. If you are pursuing MBA after 2 to 3 years of work experience, some banks may offer you a concession on the interest rate from 0.25% to 0.5%. Better to enquire for the same before taking a loan.

  1. Repayment terms

Repayment of loan for higher studies starts at the end of moratorium period which can range anywhere between 1 to 3 years. A longer repayment may give you relief in income tax while it is always a good idea to pay back early and get rid of your loans. Some banks also offer rebate on interest rates if you go for a shorter repayment period.

  1. Negotiate well

Competition in banking sector is high enough. So, it is suggested that you understand the mechanism well and negotiate on payment terms for your foreign education loan. The interest is usually charged on reducing balance, so make sure you check that with your bank. At any point make sure you do not let the banks cheat you!

Last but not the least, research well about the college you are going for. Find out their placement records, faculty credentials and recognition so as to make sure the money you are going to spend with be worth every penny!

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