Skip to content
Home » Common Terms in Education Loans: Prospective Borrowers in 2024 Must Know

Common Terms in Education Loans: Prospective Borrowers in 2024 Must Know

Many students aim to pursue higher education. However, growing educational expenses are becoming a significant barrier to the journey. In such cases, educational or student loans can provide essential financial assistance.

A loan for educational purposes is a medium- to short-term financial instrument for learners. It provides the funds required to meet the tuition and other expenses of the institution or group. Wherever learners with financial challenges desire to pursue education, they can opt for this. Education loans for pursuing higher education abroad have helped plenty of learners in recent years. The availability of educational loans has helped many to realize their ambition of studying abroad.

Arranging an educational or student loan to pursue higher education inside or outside the country is sometimes a complicated matter. Because it generally involves an abundance of complex regulations and conditions. But if in advance you gain some knowledge, then it will seem simpler even if you are new to the loan field.

The Key Terminologies for Student Education Loans

Below is a selection of the most common educational loan terminology. You are going to be familiar with common educational loan terms. If you are seeking your educational loan for the first time, it will be a great guidance for you. You can opt for an educational loan to study within India or in another country with the loan amount.

  1. Collateral in Educational Loans

A collateral is an item or property that the applicant presents to the lenders as security for the loan sum. If the borrower defaults or fails to pay off the money borrowed, the financial institution has the authority to seize the asset.

Collateral might take the form of assets, fixed deposits, or additional valuable items. Although nearly all educational loans demand collateral, offering collateral may reduce rates of interest.

  1. Processing Fee

A processing fee is a one-time payment made to the financial institution to handle processing and confirming the request for financing. This fee might range from a set amount to a certain percentage of the money being borrowed.

  1. Moratorium Period

The moratorium time frame is referred to as an EMI-free time. It begins on a loan’s sanctioning date. This extends for a further period of grace right after completion of any specific degree or program.

The purpose of this window of time is to provide a chance for students or learners to get settled. It sometimes offers the opportunity to get a job and start making money before initiating repayment.

Meanwhile, it is important to be aware that almost all bachelor’s degree seekers are not granted a period of moratorium. Therefore, they get started paying back the loan right away after they complete a degree.

The instalment loan (EMI) is often only relevant to the released money up to the last computation phase. It benefits lending organizations. For renowned master’s degree programs in nations such as the United States, the moratorium period spans between six and twelve months.

Throughout this period, financial institutions impose interest on the granted value, which will be added to the loan’s principal. In the situations where the applicant fails to repay the whole or partial interest charged.

  1. Cosigner/Co-Borrower/ Co-Applicants

    A cosigner is someone who jointly asks for an educational loan together with the main applicant. They are generally their parents or family members. They are commonly also referred to as co-applicants or co-borrowers. The cosigner bears equal responsibility for repaying debts and getting involved in financial liabilities.

A co-signer with a steady salary and a strong credit history may solidify the financial assistance request and improve the probability of loan acceptance.

  1. Interest Costs

Interest is a loan charge payable for borrowing money. The cost is computed as a percentage of the loan’s outstanding principal.

  1. Sanction Letter

A sanction letter is a legal document sent by the financial institution. This is to confirm the authorization of the educational loan. It includes some vital information about the loan. The size of the loan, rate of interest, payback schedule, and other rules and conditions are generally mentioned there. This sanction letter represents a legally binding agreement. This is between the applicant and the financial institution.

  1. Floating or Variable Interest Rates

A variable rate of interest, commonly referred to as a rate float, occurs during a loan’s repayment term. Interest rates are typically tied to a standard rate, like the MCLR or the Repo Rate.

Modifications in the benchmark rate can generate variations in the interest rate. It may influence the monthly instalment amount and loan term. These impacts may apply to both the person receiving the loan and the financial institution.

  1. Grace Period

A grace period is a brief period of no more than twelve months. Following the conclusion of the educational program, “the person,” taking out the loan is not obligated to pay back any amount. This interval helps the borrowing party find employment. They can arrange otherwise before beginning repayments.

Based on the loan’s conditions, interest charges may not accumulate throughout the grace period.

  1. Annual Percentage Rate or APR

The Annual Percentage Rate (APR) is the overall expense of taking out loans. This includes interest charges and any additional related costs or charges, represented as an annual percentage figure. The APR shows a complete picture of the full expenses associated with the loan. It also assists in evaluating financing options from various lenders.

  1. Margin Money in Education Loans

Margin money, frequently referred to as a down payment. It is a percentage of total educational expenses that the recipient of the loan must cover. The financial institution funds the remainder with an educational loan. The margin money demands differ by lender and loan product. It generally represents a percentage of the overall cost.

  1. Educational Loan Term or Tenure

The loan term defines how long the applicant has to pay back the borrowed funds. It is usually within a few years after the moratorium’s duration finishes. The loan term varies based on the borrowed funds, rates of interest, and the applicant’s desire.

Extended loan terms bring about cheaper monthly instalments but higher total repayments for interest.

  1. CIBIL Score

The CIBIL score is a three-digit summary of your credit record. It indicates your prior credit activity, specifically how successfully you’ve returned previous debts. Lenders make use of this score to assess your ability to repay loans.

Whenever you ask for a loan from any lender nearly all will ask about CIBIL SCORE. It is of great importance for anyone looking for an unsecured educational loan to have an impressive CIBIL score.

Making the vital initial move towards reaching your educational targets may entail obtaining an educational loan, particularly if you are seeking an advanced degree.

Knowledge of the basic language linked with student loans in the nation of India is extremely important for prospective loan seekers. It enables individuals to make smart choices. Like they can choose a trustworthy lender and obtain loans with favourable conditions and repayment terms.

  1. Loan Consolidation

Consolidation is a means of consolidating multiple loans into a single, fresh loan.

  1. Forbearance

Forbearance refers to temporarily suspending or reducing monthly repayments for debts. Your lending institution may offer forbearance if it appears you are struggling to repay loan instalments. May be you are trapped in financial difficulties.

Throughout forbearance, principal payments get delayed while interest continues to accumulate. Throughout the forbearance period, any interest that remains unpaid will be computed. Finally, it will be added to the loan’s principal balance.

  1. Refinance

Refinancing is the process of consolidating multiple loans into one separate loan. This may result in reduced interest rates or monthly instalments.

  1. Loan Default

The inability to return a loan as stipulated in the agreement. In case you default, you may face substantial legal consequences.

Bottom Line

Many financial institutions offer loans for higher education, but it might be tough to choose the best lenders in India. Being aware of the limitations and regulations associated with overseas education loans is critical. It helps in avoiding unforeseen financial hardship.

Learners may arrive at a wise decision by considering some factors. These are rates of interest, moratorium time frames, loan duration, prepayment and foreclosure costs. Additionally, the highest loan limits, disbursement schedule and beneficiary, past-due payment coverage, and tax-related benefits are also points to look into.

Advancement in educational sectors has allowed students to pursue worldwide Education. Educational loans have evolved into an important cost-effective option. Therefore, needy but meritorious and ambitious learners are studying worldwide to pursue higher degrees.

However, understanding the jargon-filled lending formalities can be confusing for individuals. Here, you will get a thorough list of several terms connected to the educational loan procedure. You can opt for a loan after gaining knowledge about related terminologies.

Leave a Reply

Your email address will not be published. Required fields are marked *