While studying abroad can be a fantastic opportunity, it is frequently expensive. Many students use education loans to help pay for their education. But, applying for and obtaining an education loan can be difficult, especially if you need help understanding lenders' terminology. Understanding the basic terms and ideas surrounding student loans for study abroad will help you navigate the process more confidently and decide your financial future.
Principal: This refers to the initial loan amount the borrower takes from the lender. It is the amount borrowed and is usually repaid with interest over time.
Co-Signer: A co-signer is a person who guarantees to pay the loan if the borrower is unable to pay it. The co-signer takes responsibility for the loan if the borrower fails to repay it.
Collateral refers to an asset the borrower pledges to the lender as security for the loan. If the borrower defaults on the loan, the lender can grab the collateral to recover the loan amount.
Credit Score: A credit score is a numerical rating that reflects a borrower's creditworthiness based on their credit history, income, and other factors. A good credit score increases the possibility of getting a loan at a lesser interest rate.
Disbursement: This is the process of paying out the loan amount to the borrower or the institution on behalf of the borrower. Disbursement usually occurs in instalments and depends on the loan agreement's terms.
Grace Period: This refers to the period after the course completion, during which the borrower is not required to make any payments towards the loan. The grace period is usually a few months, giving the borrower time to find a job and settle before repaying the loan.
Interest Rate: The interest rate is the percentage of the loan amount the lender charges as interest. It is an important factor to consider when applying for an education loan, as it can significantly impact the overall cost of the loan.
Margin Money: This is the amount you must pay upfront for your education expenses. It is usually a percentage of the total cost of education, and the loan covers the remaining amount.
Repayment Period/Tenure: This is when you are required to repay the loan. Depending on the lender and the loan amount, it can range from a few months to several years.
Subsidy: This benefit is offered to eligible borrowers, usually by the government or the lender. It can be in the form of a reduced interest rate or a waiver of a part of the loan amount.
Underwriting: This is evaluating a borrower's creditworthiness and financial background to determine their eligibility for a loan. It involves assessing the borrower's income, employment history, credit score, and other relevant factors.
Prepayment: This is the option to make early payments towards the loan, either in part or in full, before the end of the repayment tenure. It can help you save on interest charges, but some lenders may charge a penalty for prepayment.
Foreclosure: This is the option to close the loan before the end of the repayment tenure. It can help you save on interest charges, but it may attract a penalty, and the terms and conditions may vary from lender to lender.
EMI: Equated Monthly Instalment (EMI) is the fixed amount you must pay to the lender every month towards the loan repayment. It includes both the principal and the interest, and the amount is calculated based on the loan amount, interest rate, and repayment tenure.
