If I talk about the best strategy for paying off Student’s Loan, then I would say this. At the first place, do not to go for any Loan for your higher studies, if at all possible then only, else, offcourse, study is more important.
Now, you need to apply for Student’s loan for your studies in India or abroad. Then make sure, you opt a bank which doesn’t charge you more than the industry trends. Such banks are PSU bank, like State Bank of India, Central Bank of India, etc.
You may also read: SBI Student Loan Scheme
Other than PSU Banks, you always have an option to apply for education loan to private banks like HDFC, ICICI, etc. Though you definitely would get better services from these banks, but, beware of their high charges for the services. So, before you decide to opt any bank, you may like to do some research about the facilities, charges, Rate of Interest and repayment terms.
May be useful for you : HDFC Education Loan for Indian Education
Best Plan to pay off the Student’s Loan:
Student’s loan repayments typically consist of both interest and a principal. The best plan for paying off Student’s Loan is by paying the interest from month 1 that is the month next to the one when you got the loan sanctioned. Because, during the Moratorium period, the interest which is applied on your principal amount is simple interest. Therefore, this amount of interest is always lower and better to pay off on monthly basis.
If you keep paying the interest on monthly basis, then, when your repayment starts, you are left with the principal amount only. This principal amount never becomes a burden for you, and it’ll also save you money in the long run, since you won’t pay as much in interest, hence, its really easy for you to pay off your Education Loan.
If you are planning not to pay off your Student’s Loan, beware. Let me warn you, it would definitely impact your Credit-ability. Repayment behavior on Education loans is reported to the credit reporting agencies. So if you make your payments as required by the due date, you will build a good credit history. If you make your payments late, or skip payments, you will build a bad credit history.
Advantages of Repayment the Loan on Time:
There are two advantages, however, to paying off your Education Loan faster, although they’re not just on your credit score. You’ll improve your debt-to-income ratio, which is something banks check before making a big loan like a Mortgage or Home Loan.
Ohh…I forgot to mention, If you repay your Education Loan timely then, you are eligible for a Tax rebate for the interest you pay on an education loan under Section 80(E) of the Income Tax Act 1961. Your parents can claim a deduction when they take a loan for your education or you can claim a deduction when you take a loan for your own, your spouse’s or your children’s education.
Since the period of deduction is limited to 8 years and there is no cap on the amount of deduction, it is prudent to wrap up your loan in 8 years and claim as much interest as possible, of course, when you are able to afford the outgo. Note that, the law does not specify whether this higher education has to be undertaken in India or outside India.
Recommended Read: Central Sector Scheme of Scholarship for College and University Students
There is a Golden rule about Loans. Either you don’t borrow any loan, or if you do, then do not try to skip the repayment of the same. Because, Skipping the repayments will definitely ruin your future Credit-ability. And, to be really honest, you never know, when your Credit-ability would become your prime importance.
Please comment below to add to the topic.