Are you servicing education loan interest rates? Read on.
With the pandemic still hovering over our heads and our finances in disarray, it can be challenging to make loan repayments on time and avoid default. But whatever you do, do not default on your loan repayments! In case you do, your credit score will take a serious hit.
So, how can you avoid education loan default? Here are a few ways you can prevent defaulting on your student loan.
For existing loan borrowers
1. Restructure your loan
If you are having a hard time servicing yourloan, you should inform your lender and get it restructured. This means that you can extend your personal loan tenure for a lower monthly EMI. But know that with the extension of tenure, the total interest payable goes up. The overall loan can become much more expensive.
Nevertheless, paying additional interest is still better than defaulting on your loan.
2. Pay interest during moratorium
The moratorium refers to the grace period where you enjoy a holiday from your education loan EMIs. You needn’t start repaying immediately after the loan is disbursed, but probably after you finish your degree or start earning. During this time, your lender only charges simple interest and adds it to the principal amount. You don’t have to pay any EMIs.
However, paying off the interest component during the moratorium period will bring down the overall repayment cost. Also, many lenders offer a concession on the overall interest rate if you do so. This can reduce the overall loan burden and make repayments easier for later.
For new loan borrowers
3. Borrow only as much as you need
You might be tempted to borrow more than you need to cover all your costs, but here is why you shouldn’t.
First of all, if you borrow more, your overall interest accrued will be higher, and so will be your monthly repayments. Secondly, if you end up earning lower than what you hoped for, you will have a high debt to income ratio and repaying your monthly loan instalments on time can become challenging. Therefore, borrow only as much as you need.
If you’re unsure, you can always use an personal loan EMI calculator to understand your loan liabilities and proceed accordingly.
4. Defer the payment
Lenders usually offer the option to pause your EMI outgo for a stipulated amount of time. This is a convenient option if you are in a financial bind and expecting a lump sum payment in the near future.
But if you aren’t offered this option up front, you can always request your lender to defer your loan repayment. First, stabilize your financial conditions, and then continue paying the loan to prevent loan default.
Additional Read: Reasons Education loan is preferable than Personal loan
To sum up
Always remember, student loan default should never be on the plate. Use the above tips to make timely repayments and keep your credit score intact.
With all that said, if you are in the market to avail of a student loan, look no further. At Tata Capital, we advance tailored loans to help you cover expenses like the cost of books, hostel charges, tuition fees, etc. Visit our website to learn more.