Taking an education loan in order to manage the finances of an education abroad is a smart move. Abroad education is important for your career growth; acquiring a degree from a prestigious university abroad is an eye-catching point on your resume. It will make you eligible to apply to globally leading companies. Even in India, companies are keenly interested in hiring employees who have an international degree, a high level of competence, a risk-taking attitude, and a willingness to learn from diverse cultures and dynamic personalities around them. Such individuals are believed to be exposed to new ideas, and having them onboard is a plus for any company.
Financial obstacles are one of the main reasons that let students drop their goal of studying abroad, specifically those coming from economically weaker sections. However, education loans are an option for such students. Apart from the many benefits associated with education loans, there are many pitfalls along the way.
Here are some common pitfalls that come in the way of an education loan abroad:
Credit card defaults
The financial history of the applicant holds important value in the education loan process in determining their worthiness for the loan. If you have failed to make payments on credit cards in the past, then it will impact your CIBIL score as well. Every lender considers the CIBIL score before approving the loan application. When you miss the payments for six months or more consecutively, you will be listed as a credit card defaulter.
Once you are listed as a credit card defaulter, it will hamper your chances of getting an education loan. In order to avoid facing such a situation, it is advised to avoid being a defaulter and make timely payments on your credit card.
Loan Repayment Break
With the beginning of loan repayment, borrowers need to be regular with their payments to avoid late payments and penalties by the lender. Sometimes, due to financial crunches, individuals feel struggling and stuck to make the payments on time, which has a negative impact on their CIBIL profile. To avoid facing any situation like this during the education loan repayment period, you can discuss with your loan provider a break from loan repayment. Interest and EMIs will accumulate, but you will have some time to focus on other relevant things.
Before taking a break from the loan repayment plan, you should determine when you will be able to restart it; however, it will depend on your creditor's willingness to accept the payment break. There are chances that if your creditor agrees to do so, they will charge additional interest and payments once the break is over.
Not filing ITRs
Income tax returns are important documents for applying for overseas education loans. Your loan creditor may ask you to submit the ITR filed in the last 3 years. However, in developing countries like India, financial illiteracy is one of the main reasons for its slow growth. So many adult individuals are not active tax payers and do not realise the income tax payment regime. Income tax returns are not restricted to people who fall under the tax slab; anyone can file them. It can help you in so many ways, especially in getting an education loan abroad for your future endeavours.
Not filing the ITR can be proven as an obstacle to getting a foreign education loan. Avoiding this serious pitfall will reduce your chances of loan approval.
Already paying high EMIs on the previous loan
It is advisable to complete the EMIs or pending dues on your previous debt. Anyone who is already paying high EMIs is not recommended to apply for the next loan; it can cause financial stress. Creditors always refer to the financial profile of the borrower in case they find any pendency of previous debt; in such a situation, the creditor will immediately reject your loan application.
To avoid facing such a situation, borrowers should make sure to clear all their pending dues before taking any other loan in the future. If you have any ongoing loans, then you can consider other ways, like self-financing your overseas education or applying for a scholarship to avail yourself of the financial aid.
Low academic grades
Academics are an important factor in ensuring a successful career. There are many opportunities for students with a strong academic record to have their student loan for studying abroad approved by the bank. Banks can reject the loan applications of students with low academic scores as they determine the employability of students on the basis of their educational performance. Students with a minimum of 60% marks are acceptable for foreign education loans, but those with less than the above category have higher chances of rejection.
Showcase FD as a solution
If you have faced rejection for your overseas loan application from the bank, don’t worry; there is still an option you can try your hand at. If students have secured admission to the university and have the university offer letter, then they can try to showcase a fixed deposit as a solution to borrowing the loan from the bank.
Banks provide the instant education loan facility in cases where students failed to get the loan amount due to poor CIBIL scores and default cases in the past. Let’s understand this with an example: you have a loan requirement of 30 lakh INR to fund your education expenses abroad, but banks have rejected your loan application due to your CIBIL score or past default reasons. In that case, you can make a fixed deposit of 25% of the required loan amount at the bank. This amount will be arranged by the student only, giving some sort of liability to the student if the bank agrees to disburse the rest as an education loan.
Contact an Education Loan Guru to avoid these common pitfalls that come in your way of studying abroad.
By Education Loan Guru
