Examining top-up education loan as your best option

Covering the cost of education, especially when you study abroad, will be a huge responsibility to take. Often people depend on education loans to meet the expense of studies. There are some important factors that you will have to consider before you take a loan. More so when you need an additional amount of money to keeps the education going.

The cost of study overseas is getting higher. The effect is aggravated by the depreciation of the Rupee against foreign currencies like the Dollar. When the expenses are to be met in foreign currency, the difference in value can pinch you more. It will take a prudent decision for you to finance your ward’s education overseas with an education loan.

There are quite a few banks and loan providers who can help you in this regard. But what if you need an additional amount of money to finance education? Then you may think of taking another loan. This could give you an added burden. But if you plan wisely, you can solve your additional needs with the right top-up loan.

A top-up loan can be taken from the bank that has already given you an education loan. This will be easier because the bank already has your details. The bank can process your loan faster.

The factor of loan eligibility is one that can help you in planning your top-up loan. The top-up loan depends on 2 variables:

• The maximum eligibility you have
• The current outstanding amount

Imagine that you have taken only 80% of your eligible loan amount. You will still be eligible for a top-up for the unused 20%. If you have repaid 10% of your original loan, then your eligibility increases to 30% (20+10).

Another factor you need to consider is the interest rate charged by the bank. You will always want to go for a loan with banks that charge lesser interest. If you found another bank with a lesser interest rate, you may consider taking another loan from there. But you have a better way to go about it. You can transfer the loan account from the old bank to the new one. But if you want to take advantage of top-up, make sure that the new bank gives such a facility.

You should be aware that a top-up loan’s rate of interest is higher than the existing loan. The rate of interest for the top-up loan can be fixed or floating. In India, the interest rate on top-up loans varies from 12%-15%.

If you are well informed and diligent about the variables involved, you can make wise decisions with education loans. The variables that influence the interest rate include:

• Experience/history with loans
• Loan amount availed
• Loan tenure
• Student’s academic record
• The educational institute
• Market conditions

Banks will check your creditworthiness and may even ask you for more collateral. By providing more collateral, your Loan to Value (LTV) ratio increases. This could fetch you a better competitive rate of interest.

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