Understanding key terms for Education Loans

Securing a Education Loan is an important step in pursuing higher education, especially when finances are a concern. To ensure you make informed decisions, it's important to understand the various terms associated with these loans.

Education Loan terms you should know

1. Principal amount: The principal amount is the money you borrow from the bank. This is the amount on which the interest is calculated. For example, if you take a loan of ₹10 lakh, that is your principal amount.

2. Interest rate: Education Loan fixed interest rates remain constant throughout the tenure, whereas floating rates fluctuate based on market conditions. It's important to compare rates from different lenders before finalising your loan.

3. Repayment tenure: This is the duration over which you will repay the loan. Repayment tenures for Education Loans typically range from 5 to 15 years.

4. Moratorium period: Also known as the repayment holiday, this is the period during which you are not required to pay any loan instalments. For most Education Loans, the moratorium period includes the course duration, plus an additional 6-12 months after course completion.

5. Equated monthly instalment (EMI): It is the fixed monthly amount you pay to the bank after the moratorium period ends. This amount includes both the principal and the interest.

6. Collateral security: For higher loan amounts, banks may require collateral, which could be in the form of property, Fixed Deposits, or any other asset. Loans without collateral are generally available for smaller amounts.

7. Co-applicant: A co-applicant is usually a parent or guardian who jointly applies for the loan with the student. The co-applicant's financial standing can influence the loan approval and terms.

8. Prepayment and foreclosure: Prepayment refers to paying off a part of the loan before the due date, while foreclosure is paying off the entire loan before the tenure ends.

9. Disbursement: This is the process through which the loan amount is released to the borrower or directly to the educational institution. Disbursements can be done in instalments or a lump sum, depending on the lender's policy.

10. Processing fee: This is a one-time fee charged by the bank for processing the loan application. This fee is usually a percentage of the loan amount and varies from bank to bank.

11. Loan margin: This is the portion of the educational expenses that you need to fund on your own. For instance, if a loan covers 85% of the total expenses, the remaining 15% is the loan margin you must arrange.

12. Loan agreement: It is a formal contract between the borrower and the lender, detailing the loan amount, interest rate, repayment schedule, and other terms and conditions.

13. Sanction letter: This is a document issued by the lender after the loan is approved, stating the sanctioned loan amount, interest rate, tenure and other important details. It serves as proof of loan approval and is required for disbursement.

Also Read: What are the different types of Education Loans in India?

Wrapping up

If you are considering applying for a Education Loan, understanding the terms is crucial. Axis Bank offers Education Loans with competitive interest rates, loan amounts starting from ₹4 lakh, and easy disbursement processes. With features like pre-admission sanction and flexible repayment options, Axis Bank's Education Loan is tailored to meet your needs.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.