So, you already have a loan, but want to take another one for your child’s education. You want to give your child the best education possible so that they can make a good and lucrative career and become responsible citizens of the country. You must be wondering whether it is even possible to do so. You already know that you can avail two loans at the same time. Good quality higher education costs a lot of money. In addition to the fact that you do not have the cash, you are already paying instalments on another loan, let’s say a home loan. So, can you take out an education loan on top of it? The answer to it is yes, but in a bit of a roundabout way. What you can do is take a top-up on your home loan and use it to fund the education of your child. If you have been paying your home loan EMIs regularly and on time, then your bank would gladly give you a top-up as the value of your mortgaged property would anyway have increased during the course of time when you were paying the EMIs on it. In fact, the bank is unlikely to ask you for any additional documentation, except for your latest pay-slip and a bank statement.
Is A Top-Up Loan Better Than an Education Loan?
Education loans are tailored for students wishing to pursue higher studies, but the manner in which parents choose to raise the money to fund it is their choice. Let’s see how an education loan compares with a top-up loan:
Rate of interest:The rate of interest on education loans in India are typically higher than, say, a home loan. An education loan interest rate could go on the higher side up to 17%, while a top-up loan on your existing home loan would cost you at the most 1% more than the interest rate you are already paying on it, which would be about 14%.So, it would certainly work out cheaper for you to take a top-up loan instead of an education loan, as you will be paying lesser interest on it.
Repayment schedule:You can club the repayment schedule of your top-up loan with your home loan EMIs, which typically are repaid over a longer duration than an education loan.Since a home loan can be repaid over a tenure of 15 years and an education loan has to be repaid over just 8 years, the total outflow of your funds would be lesser if you take a top-up loan instead of an education loan. The EMIs would workout to be lesser, and you will have more disposable income on hand. However, the advantage of an education loan is that you get a moratorium period of about a year after your child finishes studies before your EMIs start. So, weigh the pros and cons of both, and calculate the total cost you will bear in each case and then decide which one to go for.
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