Higher education provides numerous avenues in life for students. However, it comes at great cost, literally! Higher Education has become expensive over the years, and the cost of education continues to rise. The increase in the cost of education sometimes leads to bright and excellent students avoid good colleges because of the high fees. However, they do not need to do so as they can apply for education loan. It is the amount provided to a student to cover the expenses associated with his or her education. It includes various aspects under its coverage such as tuition fee, library fee, laboratory fee, equipment fee, cost of books and other study materials, travel expense, and depending on the lender even laptops and two-wheelers. Additionally, the tenure of education loan can be up to 15 years depending on the lender. All these factors make education loan an effective support pillar for students dreaming of a better education.
However, education loan offered by banks, NBFCs, and online lenders is not perfect. While the loan is to help students attain higher education, there are a few aspects that require proper planning to select the loan. The education loan interest rate offered by lenders is higher than most loans. One of the reasons behind the high interest rate is that lenders take a huge risk by offering education loan. As there are a lot of uncertain variables involved with the loan, lenders tend to include terms & conditions that would guarantee security of loan. Uncertain factors such as:
- The student may not be able to complete education due to unforeseen circumstances
- The student may not be able to secure a well-paying job
So, what consequences does a borrower face, if he or she is unable to repay education loan?
Education Loan Repayment
Education loan repayment can be a huge concern for borrowers. It requires meticulous financial planning of more than a decade to ensure that the loan is repaid in its entirety along with the interest. However, what would happen if education loan repayment cannot be made in a timely manner or not at all. The result of the inability is best explored through three different scenarios. Each scenario depends on the nature of the education loan i.e. the amount borrowed and collateral or involvement of guarantor.
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If the Loan Amount Does not Exceed 4 Lacs
If the loan amount borrowed by you does not exceed 4 lacs, it means that you have not signed off any security or collateral to the lender, and nobody was the guarantor of the loan. In such a scenario, the lender will send you notices and warnings for education loan repayment for a short period of time. Then, if you are still unable to continue payments, you will be considered as a defaulter. It will hurt your credit score and you will be included in the defaulter list of CIBIL. As a result, you will find it tough to secure any sort of loan for a considerable amount of time.
If the Loan involved a Guarantor
Your loan amount could have been such that the lender would not have provided you loan without the guarantee of a 3rd party. A 3rd party guarantee has its own benefits which include a lower education loan interest rate and easier loan approval process. However, in case you are unable to repay the loan, even after notices and warnings, then the lender will pressure the guarantor to pay back the loan. If you default on the loan, your credit score along with the guarantor’s credit score will take a huge hit. You will be included on the defaulter list of CIBIL, and the 3rd party could face the same result.
If the Loan involved Security or Collateral
Your education loan amount could be so large that the loan could not be approved without a collateral or security as mortgage. In such a scenario, you may have gotten a lower education loan interest rate depending on the asset you mortgaged. However, if you cannot repay the loan then the first thing that the lender will do is send notices and warnings. However, if the repayment does not begin or resume then the lender is legally entitled to your property, and can confiscate it. The lender can then auction or use the property as it deems fit. Additionally, not only will your credit score be at its lowest possible point but you will also be added on the defaulter list of CIBIL.
Education loan can be tough to repay due to the number of uncertain elements involved. Moreover, the consequences of failing to repay the loan are so sever and damaging that you need to ensure that the loan is repaid, no matter what. The education loan interest rate is generally high even when offered by banks. So, if you require loan for a small amount then download the PaySense app. PaySense offers loan up to INR 2 lacs without any security or collateral. Unlike banks that have a tedious documentation process and take a long time in approving the loan, PaySense guarantees instant approvals. In fact, the amount will also be credited into your account within a short time after approval.
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