5 mistakes people make when taking out a student loan
The education loan is the second largest contributor to consumer debt in the world, led only by home loans. Thanks to the catching up of the trend in India, millions of students have been able to fulfill their dream of pursuing higher education, both at home and abroad. Taking out a loan for education, however, is a life-changing decision – it should not be taken lightly. If not cared for and cared for, it can become a chronic headache. Below are a few things you need to keep in mind when getting a student loan to avoid any unprecedented problems.
Borrow more than necessary
The maximum loan amount that you can withdraw from a bank ranges from 20 lakhs to 40 lakhs. This, however, does not in any way mean that you have to borrow such a large sum. The more money you withdraw from the bank, the more you will have to return in terms of interest. You don’t need extra money just to pay it off with interest. Therefore, be sure to sit down and accurately calculate your net education expenses before deciding how much to borrow.
The temptation of luxury
Once you have the money in hand, it’s not easy to stop yourself from spending it. But your student loan is for educational purposes only, and it is something that you must imbibe yourself before applying for the loan. Try to find a part-time job to fund your non-academic expenses instead of covering your living expenses with the loan.
Lack of research
Diving headlong into the first offer that comes up is one of the worst mistakes you can make when applying for a student loan. Research the market thoroughly, then do some additional research. Compare interest rates between sources and choose the one that results in the smallest repayment amount. Quite often, some fintech companies offer lower interest rates than banks and also make transactions faster and easier.
Favor long-term repayment over short-term repayment
Long-term repayment involves paying a small monthly payment each month over a long period of time, while short-term repayment involves paying the maximum monthly payment the student can afford, which allows debt to be cleared faster. Students often tend to go with the former because it is more comfortable. However, they fail to notice that it is also about repaying a significantly larger amount of money due to the accumulation of interest. Whenever possible, prefer short-term repayment over long-term repayment.
Do not read the fine print
The TL: DR (Too Long: Didn’t Read) trend isn’t limited to online blogging. Many students end up purchasing an expensive student loan without reading the fine print on the document, only to find later that it does not cover their necessary expenses. Another obstacle is that many students who apply for the loan are unfamiliar with financial matters. If this is the case, seek professional advice. Even if it costs you a little, it will end up saving you a lot in the long run.
(Author Henna Jain Tatia is co-founder, Stucred. The opinions expressed here are personal.)