Steps to avoid debt trap of education loan


While funding your MBA, you may actually be attracted to the required MBA education loan. This can get you into a debt trap. Getting into the MBA education loan trap is easier than you think and usually we run into a bank, whose plans seem attractive but have many flaws to plug.

 

There is no doubt that education loan for MBA is the best option for finance for your MBA studies, but it is also important to avoid falling into the trap of education loan after completing MBA program. It is definitely bad to fall into the trap of education loan without giving it proper consideration which reflects your poor management skills.

 

Sometimes we have to approach other banks to take existing education loans to get rid of the vicious cycle of these schemes because of hidden fees, high rates of interest, compound interest system, guarantees and regularly repaying EMIs gets tough. Security system as well as irrelevant documentation.

 

So, watch your steps

Sometimes, you spend more than you can afford and then struggle to pay off the compounding debt at a huge interest rate. Remember, education loan plans can be very attractive, but it can take many years of your life to repay it. So be cautious by going ahead with your idea of ​​taking an education loan for MBA, which can cause you to fall into a debt trap that you never expected. The following are the important steps that can save you from falling into the debt trap:

 

Step-1: Read carefully MBA Education Loan Cap

MBA education is expensive and you will get 10 to Rs. May be required. 30 lakh to carry it forward. Find out which bank can meet your needs. If you get Rs. The bank's 20 lakh and education loan upper limit is Rs 15 lakh, it will be a difficult situation and you will have to arrange an additional Rs 5 lakh from some other sources which can put you in many financial burdens.

 

Step-2: Find the margin required by the bank

There are some public sector and private banks that do not ask for margin money on MBA education loans even for an amount as high as Rs. 20 lakhs for example Central Bank of India, Union Bank of India, Avance Financial Services. On the other hand there are banks which will ask for margin in the range of 5 to 10 percent on loan amount of more than Rs 4 to 10 lakh. It is always better to confirm with the bank about their update plans as sometimes they do not update it on their site.

 

If banks deposit margin money from you and you pay it, because you need a loan and don't have much time left to pay the fee, you can ask for the same refund later. As per the rules, the bank, if they do not charge anything, will have to return it and in case of any resistance you can claim the return with interest by writing to your higher officials, Lokpal and you will get the refund payment. With all expenses incurred.

 

Step-3: Check for processing charge

Some banks and financial institutions charge a one-time processing fee of 5000 rupees or 0.5% to 2% of the loan amount. Most public sector banks do not have any such fee, especially on education loans. Still you have to check whether it is the fee charged by the bank that you are coming and whether it can be waived. In most eligible cases, banks may waive processing fees while granting education loans.

 

Step-4: Compare interest rate structure

This is the most important. This is the price of the education loan you are going to repay. The new interest rate structure defines the base rate, this base rate is usually the base lending rate. A bank may set a rate above or below this base rate which will eventually become the real interest rate.

 

For example, if the base rate is 10.25% and the bank declares its education loan interest rate 0.25% above the base rate, then it will be 10.50% (adding 0.25% to the base rate). Sometimes when the Base Rate is mentioned above + 1.50% or 2.25% Base Rate, we are tempted to think that it means very little interest, but in fact it is quite high. Therefore, before applying for MBA education loan, you should check the base rate of the particular bank and then add the rate quoted by the bank.

 

Step-5: Interest application procedure on loan during MBA course

This is another gray area where financial institutions can play foul without regular monitoring. Most banks charge simple interest during the moratorium period ie the course period and the grace period given for starting the repayment of loan.

 

This is very possible when entering details and data in their computer systems, either due to omissions or due to ignorance of banking personnel, they are not able to feed the correct moratorium period or they may have faulty software. Whatever the reason may be, the loss will be yours as the banking system will go on compound interest even during the moratorium period.

This has coincided with the number of MBA, engineering, medical and other business educational loans. Despite running from pillar to post, the number of candidates could not get it right. The height of audacity is so high that even the employees of the bank were not spared.

 

Let us understand Tantra with an example: IIM Bangalore offers admission

Approved MBA Education Loan-18 Lakhs;

• Int-10.70% rate; Simple interest during moratorium period

• All expenses on IIMB-Rs.18 Lakh

Fees and other charges to be repaid in 4 equal installments: Rs. 4.5 lakhs x 4 = Rs. 8 lakhs

First installment paid by the bank - Rs. 4 million; Annual interest - 4.5 lakh xx10 .70% = Rs. 48150 / - pa

Monthly interest Rs. 48150/12 = Rs. 4012 / = per month

 

As simple interest Rs. 4,012 / - per month will be charged only, whether you pay interest during the course period or do not pay it. In any case it will be deposited in your principal amount of Rs. 4.5 lakhs will not be added; The interest amount will be parked separately.

 

Now, the catch: Banks often forget the mechanism and the monthly interest amount is added to the principal amount and next month you will get a higher amount of interest in your loan account.

 

How to check: Check the interest application in your account every month; Ask for account details. Banks provide internet facility, so you can check and verify on your end also. In case of discrepancy, contact the bank immediately in writing. They forget oral communication; This is especially true in the case of public sector banks.

 

Step-6: Change in interest rate later

Almost all banks are offering MBA education loans at floating rate. This means that if there is a change in their base rate, the effective interest rate will also change.

 

What you should do: All banks remember to change the interest rate in case of an increase in the base rate. But in case of shortfall due to base rate reduction or other factors, they forget to apply. Better to confirm the base rate of the bank's site. However, ironically, they also forget to update on their site. Be vigilant and monitor regularly

 

Step-7: Take less interest during MBA course

Some banks have reduced the interest burden from 0.25 to 1%, which is regularly repaid if interest is charged during the course period. It can also reduce a substantial financial burden.

 

Step-8: Work experience can reduce interest burden

A number of banks have brought this facility. If you have 2-3 years of work experience and you are pursuing MBA, then interest concession in the range of 0.25 to 0.5% may be available to you. Please inquire about this before applying for education loan.

 

Step-9: Low interest rate for women

MBA education can be affordable to girls as a concessional rate of interest will be applied to their loan. Banks like PNB provide education loans to girls at low interest rates.

 

Step-10: Opt for the best repayment period

Repayment typically begins after the moratorium period is completed. It can go from 1 year to 9 years. It is always a good idea to repay early, but if you can get repayment for longer, you can get relief in income tax. The entire portion of interest on an education loan is deducted from your income. Long term repayment may be a better option.

 

Conversely, there are banks that offer interest benefits on MBA education loans for short repayment periods for PNBs.

Steps to avoid debt trap of education loan - usaomba


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