Education Loan vs Self-Funding| North Loop Official Blog
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North Loop
21 Sep 2020

Education Loan vs Self-Funding

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Quality education comes at a steep cost, both in India and abroad. However, since it plays a vital role in determining a student’s future professional life, it can never be overlooked. If significant fixed deposits are maintained, a portion of bank deposits (yielding 7.5% - North Loop) can easily get reallocated towards higher education. But if that option does not exist, education loans come of great use to meet all the various education costs and expenses.

Let us look at some of the benefits of educations loans as compared to self-funding -

Income Tax Benefits – Education loan offers a massive tax benefit that self-funding doesn’t. As per the Income Tax Act of India, interest paid on the education loan is eligible for deduction under Section 80E. Also, the deduction under this section can get claimed for a total of 8 consecutive years. That includes the year in which the loan gets taken or the period when the loan gets fully repaid, whichever comes first. Moreover, you can not only claim a deduction if you have taken the loan for yourself but also if the loan gets taken for your spouse or children. However, an important point to remember here is that only loans taken from gazetted financial institutions are eligible for these deductions. On the other hand, if you are a self-funded student, you cannot avail any such tax benefit on your education expenses.

Credit score advantage – You can significantly improve your credit score for future financing needs by applying for an education loan and complying with its repayment terms. CIBIL scores play a vital role in the determination of eligibility for credit cards and approval of other loans like home loans, car loans, or personal loans. Therefore, increasing the credit score during your student-life can prove to be beneficial to you in the long run. Moreover, along with loan lenders, many employers also pay attention to credit scores as it reflects your trustworthiness. Low credit scores are usually associated with economic and personal instability. If you opt for self-funding on the other hand, you lose out on the opportunity to increase your CIBIL score for future financial needs and quick loan approvals.

Full cover – If you study abroad, there are various costs in addition to tuition fees that get incurred gradually. These costs include but are not limited to library fee, equipment charges, living and personal expenses etc. If you take an education loan, you can get assured of timely fee payments and full coverage of all those expenses that are required to support a healthy lifestyle in a foreign country. Self-funding, on the other hand, does not provide this benefit and the burden of various expenses can get accumulated with time and pose a problem while living abroad. For example, North Loop provides low-interest rate education loans that cover tuition fees, travel expenses, cost of buying books and study materials, laboratory fees, housing fees, laptop purchase and expenses for project work or study tours.
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Some other benefits of education loans are as follows –

Moratorium period – The repayment of education loans begins after a certain moratorium period. This period usually ranges from six months to one year after completion of the course. A moratorium period helps you get sufficient time to arrange all your funds and fulfil the repayment requirements.

Collateral – Another benefit of education loans is that you do not require collateral for loan amounts below Rs.7.5 lakh. Collateral is an asset that gets pledged against the education loan. It can be a fixed deposit, life insurance, house property or any other capital asset.

Online application – Digital service providers like North Loop offer low-interest rate, no collateral education loans for over 3000+ universities. The application process is also easy and 100% digital. All you have to do is create a North Loop account, click on ‘loans’, fill in the required details and finalize the application. You can even use the Education Cost Planner on its App to decide the loan amount. Moreover, you get a six-month moratorium after graduation to repay North Loop’s education loan.

Eligible courses – Education loans are applicable for a large number of streams and education levels that include graduate, post-graduate and PG diploma courses.

Quick processing time – On digital platforms, the application is exclusively online, thus making the loan approval and processing time extremely short.

Visa approval – Education loans also make student visa application relatively easier. If you are travelling overseas for higher education, you can use your loan sanction details as evidence of funds while securing a student visa.

Conclusion –

The education loan process can be transparent and hassle-free if you choose the right lender. While many banks like Axis Bank, HDFC Bank, ICICI Bank offer education loans, most of them have a cumbersome application process and require a lot of documents. The interest rates on the loans offered are also high and unfavourable. That is the reason, exploring all options and choosing one that is quick, transparent, and student-focussed becomes a necessity. To sign up with North Loop, click here.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.