The unfortunate reality is that it is surprisingly easy to default on education loans. The cost of higher education is rising. At the same time, there’s a rise in the number of fresh graduates in certain career streams. In case of a student loan, just missing out on a few payments can lead to a default status. This can create very serious consequences for the borrower and defaulting an education loan ruins you’re CIBIL Score. The consequences of not repaying the loan amount can be quite harsh. Not repaying a loan is no longer an option with the advent of credit bureaus.
Access to any sort of credit will be denied and you might also face difficulty in getting even a credit card or a personal loan, let alone bigger loans like a car or a home loan. Most people generally opt for an education loan to finance funds required for education purposes. Moreover, defaulting on a loan not only affects an individual’s credit score, but also their loan and credit eligibility. This results in lower chances of availing loans in the future. It’s best to avoid such defaults and make your EMI payments in a timely manner.
Here are some of the measures to help you prevent a default on education loans:
You can always switch from your current lender to another financial institution or even consider transferring the balance. You can opt for a balance transfer to get a lower interest rate with another lender for an education loan. You also have the option of converting your unsecured loan with a secured loan. However, your new lender before allowing balance transfer will take into account your track record of repayment history. Hence, you need to make sure that you don’t miss any EMI payments. You might also need to pay additional charges, while transferring the balance or changing lenders, such as documentation fees, service charges, and processing fees, etc. If you have availed an unsecured personal loan, you even consider converting into a secured personal loan for education by opting for the balance transfer facility. With a secured loan, the EMI and the interest outgo will reduce, and this will lessen your repayment burden significantly.
If you are not satisfied with your current lender, you can opt for the balance transfer facility to avail a Bajaj Finserv Personal Loan at Finserv MARKETS. The Bajaj Finserv offers low interest personal loans and has various other features such as flexible repayment option, less processing fees, no hidden charges and efficient customer service. You can easily avail a collateral free-loan for up to Rs 25 lakh with instant approval and disbursal. Moreover, you also get the option to customize your loan as per your requirement.
By rescheduling your loan payment, you extend the time of the loan. To do that you need to apply for it to your bank or loan provider and once it gets approved, you can get an extended tenure to pay off the loan. However, the extension of the loan tenure period also comes with a price, the loan itself becomes more expensive. The total interest payout also goes up with the increased loan tenor of the education loan, hence the loan becomes more expensive. Some banks and NBFCs also charge an additional charge in the form of a penalty for default payment and rescheduling of personal loans.
This is generally offered with all education loans, wherein you get to pause the outgo of your EMIs for a few months or years. It is also known as the EMI holiday, if you are not offered this upfront, you can request their lenders to allow payment deferring. This is a good option if you are expecting a lump sum in the near future or when you need to stabilize your financial conditions. During deferment, your loans will return to the repayment option you initially chose (i.e., interest, fixed, or deferred). This means if you were making either monthly interest-only or fixed payments when you originally took out your loan, you’ll continue to make those throughout your loan deferment period.
When you apply for a personal loan for education, the repayment period starts with bigger EMIs which overall decrease the repayment tenure. With the step-up repayment plan, you get to pay smaller EMIs in the initial phase, which gradually increases over-time. It's a great option if you need some time to increase your cash flow. Experts suggest loan borrowers who have recently got a job or are in a financial crisis should move ahead with this option. This helps the borrowers in raising their creditworthiness as a borrower, as the EMI outgoes are small.
You can switch from your current lender or consider transferring the balance to another financial institution that offers a lower interest rate on your loan.
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