An education loan serves as a valuable opportunity for students aspiring to pursue higher studies but facing financial constraints. It is essential to strategize and plan the repayment of your education loan, ensuring a smooth and worry-free path towards becoming debt-free. Let us guide you through this financial journey and help you navigate the process with ease.
Understanding your repayment options
The repayment phase is the most important part of your Education Loan journey. Banks usually offer a moratorium period, where students are not required to repay the loan. This period usually spans the course duration plus an additional grace period, if applicable. During the moratorium, you only pay simple interest on the amount disbursed, which is significantly lower than the actual Education Loan EMI. Once the moratorium period ends, you begin repaying the loan through fixed monthly installments. Knowing your repayment choices can assist you in handling the loan effectively and easing financial pressure.
Standard repayment plan: It is the most commonly used method of repaying loans. Under this plan, you make fixed monthly payments for a predetermined period. The amount of each monthly payment is calculated based on factors such as the total loan amount, interest rate, and loan tenure.
Extended repayment plan: It allows you to spread out the loan repayment over an extended period, resulting in reduced monthly payments. However, one trade-off of this plan is that you may end up paying more in interest over the lifespan of the loan due to the extended repayment term.
Mastering the art of debt management
Effective management of your Education Loan can transform a seemingly overwhelming debt into a manageable financial responsibility. Here are several strategies that can help you master your loan management:
Budgeting
- Create a comprehensive budget that includes your loan repayments.
- Keep track of all your income and expenses and make necessary adjustments to accommodate your monthly loan repayments.
- Budgeting can help you identify areas where you can cut back and save more towards your loan repayment.
Creating an emergency fund
- An emergency fund can act as a financial safety net.
- It provides you with funds in case of unexpected expenses or income loss.
- This way, you ensure you continue your loan repayments uninterrupted, even during tough financial times.
Also Read: [Eight benefits of taking an education loan]
Increasing income
- While cutting back on expenses can help, increasing your income can significantly accelerate your loan repayment.
- This can be through a part-time job, freelancing, or a side gig.
Accelerating repayments
- If your financial situation allows it, consider making more than the minimum required payment each month or make additional payments whenever possible.
- This can help reduce the principal faster and save on the total interest you pay over the life of your loan.
Considering loan refinancing
- Refinancing your Education Loan via Axis Bank could help you secure a lower education loan interest rate, potentially saving you a significant amount over the life of your loan.
- However, it’s important to understand that refinancing may not be suitable for everyone, as it often requires a strong credit score and stable income.
Utilising grace periods
- Many Education Loans come with a grace period after graduation, during which no payments are due.
- You can use this time to save money or start making early payments, reducing the interest that accrues on your loan.
Summing up
Loans can be tricky, but with proper understanding and management, you can turn them from daunting to doable. Remember, education is an investment in your future, and investments take time and proper planning to pay off. So, take charge of your Education Loan, and steer your ship towards a financially secure future.
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
