Overseas Education Loan Conditions and Definitions

The financial terminologies and jargon in Education Loan related documents can be overwhelming for those not well acquainted with the same. Knowledge of these terms not only helps you better understand your loan documents, the terms and conditions but also prevents you from signing for something you didn’t agree to.

It is imperative for Education Loan aspirants to spend some time understanding these terms in detail to be able to fill online loan application for abroad studies.

Below is a list of common terms associated with education loans that an applicant must be aware of:

1. Principal Amount: It is the actual loan amount taken by the borrower.
2. Interest Amount: It is the interest paid on the principal amount of the loan as per the rate of interest. The interest accumulates till the end of the moratorium period, i.e. till the time repayment of the loan begins. The amount repaid to the bank at the end of the loan tenure is the sum of principal and interest amount.
3. ROI (Rate of Interest): It is the rate at which the interest amount is calculated. It can be of two types – Fixed and Floating.
• Fixed ROI: In this case, EMIs amount is fixed as the interest rate agreed upon in the loan agreement does not change during the tenure of the loan.
• Floating ROI: In this case, the amount of EMI is not pre-determined since ROI changes with the increase or decrease in interest rates in the market.
4. Tax Rebate: Education Loans taken from gazetted banks and financial institutions are eligible for deductions on interest part of the Overseas Education Loan under Section 80E of the Income Tax Act of India.
5. Margin Money: It is the part of education cost that has to be borne by the borrower while the rest is paid by the bank.
6. Processing Fee: It is a one-time loan processing fee charged by lending banks and financial institutions and can vary.
7. Collateral: Any asset, tangible or intangible, that is pledged again the loan is known as collateral security. Types of collateral may vary but mostly include residential property, fixed deposit, non-agricultural land and life insurance.
8. Co-borrower or Co-applicant: The co-borrower acts as a guarantor and can be a parent, legal guardian or spouse (if married) of the applicant. He/she must have a steady source of income and a good credit history in order for the loan to get approved. Brother, sister, maternal/paternal uncle, aunty can be additional co-borrower.
9. Moratorium Period: The study period + the job search period together is known as the Moratorium Period.
10. Default: Default is inability to repay the loan according to the terms and conditions agreed upon at the time of loan approval and may lead to legal action.
11. Disbursement: This is the payment made by the bank or financial institution to the applicant’s college, university or institute as fee.
12. Cost of Education: Cost of Education includes tuition fee, exam and library fees, travel fare for foreign education, cost of books and uniforms, living expenses in a foreign country, and any other cost the lender deems necessary for completion of course.
13. Credit Worthiness: A valuation of your profile and credit history performed by the lending bank or financial institution to determine your loan eligibility and ability to repay the loan.
14. EMI (Equated Monthly Instalment): EMI is the monthly amount paid to the bank towards repayment of the loan and begins once the moratorium period is over.
15. Repayment Schedule: The repayment schedule is a detailed document outlining the date of commencement of repayment, the amount of principal and interest paid with each EMI, the mode of payment, and the number of EMIs to be paid till the end of the loan tenure.
16. Tenure: The loan tenure is the period from the date of first repayment of the loan is credited to the bank. This is generally after the student gets the job. The tenure of the loan is mentioned in the form which is nearly 10 to 15 years.

Now that the financial terminologies are clear, you can easily understand them when the bank official uses them. Education Loan is an investment for your future and must be ventured into with awareness and caution.