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                                        Bank Loans For MBA


The times are changing, and changing fast. The few years have witnessed a high increase in students aspiring for MBA and professional courses. The number of colleges offering these courses is also on the rise. With fees of these courses skyrocketing, students are queuing for educational loans from banks. Gone are the days when one had to run from pillar to post to borrow money to study. Now a variety of Instruments are available for pursuing higher studies.

 

Almost all nationalised banks offer educational loans to students for studies in India and abroad. Besides some private trusts are running study loan scheme, the terms and conditions of which vary from organisation to organisation. To garner students to avail educational loan nationalised and private banks have even started putting their posters in college campus and promote their schemes. This trend is catching on and one will see lot of students going in for educational loan once the awareness level increases.

 

Let us look at bank loans for funding your Post Graduation courses in India.




 

STUDENT LOANS OFFERED BY BANKS

 

 

 

 

 

 

POINTS TO REMEMBER BEFORE APPLYING FOR A LOAN

 

The tenure

A longer repayment tenure would mean more interest payments on your loan. Before you set out to complete the paperwork for a loan calculate the Equated Monthly Installments (EMI) to know how much you are expected to pay and whether you have the capacity to pay that in time.

 

The Loan Costs

Never forget the fee charged for disbursing a loan to you. Some banks have a higher fees than others. You need to take care of this important component of loan disbursements.

 

The Prepayment Dilemma

Many public sector banks do not charge you a penalty for prepayment of loans whereas many private banks ask for a penalty payment. Check this out upfront.

 

The Fixed Interest Rate

You need to know well in advance that interest rates do not fluctuate. If they fluctuate the choice is yours. There are quite a few fixed interest rate loans and if you are worried about variable interest rates then the best option is to go for a fixed interest rate to avoid suprises.

 

Monthly or Annual Repayments?

You need to check out the repayment burden on yourself and see if an annual payment suits you. If not then go for the monthly plan.

 

Taxes on loans

One can claim a deduction of up to Rs. 40,000 on the amount paid out of the taxable income in the previous year. This is a comprehensive limit, and includes principal and interest, if any.

One can claim the deduction if you've taken a loan from a financial institution or an approved charitable institution to pursue full-time courses for graduate or post-graduate level studies in engineering (including architecture), medicine and management or a post-graduate course in applied sciences or pure sciences, including mathematics and statistics.

The deduction is allowed for the first assessment year relevant to the previous year when the assessee starts repaying the loan and for seven assessment years immediately following thereafter. In other words, the deduction is available for a maximum period of eight years from the first year of repayment. The deduction shall be allowed for the period of loan and interest repayment, if it is repaid in full before the end of the above period.

Note: This deduction cannot be claimed by parents who have taken loans for the higher education of their children.

 

The Relevant section/rule is Section 80E of the Income Tax Act.

 

DOCUMENTATION REQUIRED

 

Typically the following are the basic minimum documentation to be provided to the bank while availing of loans from them:

  • Mark sheet of last qualifying examination for school and graduate studies in India
     

  • Proof of admission to the course
     

  • Schedule of expenses for the course
     

  • Statement of Bank account for the last six months of borrower
     

  • Income tax assessment order not more than 2 years old
     

  • Brief statement of assets and liabilities of borrower
     

  • Identity and give proof of residence.
     

  • Copies of letter confirming scholarship, etc.
     

  • Copies of foreign exchange permit, if applicable.
     

    PROCESSING TIME

     

    Most bank claim to disburse the loan money within one to two days after the required papers are submitted to them. A checklist is provided to the person seeking loan giving the details of the required documents like proof of age, address, admission expenses, assets and liabilities of co-obligants, details of collateral security, certificate of last qualifying examination etc.

    However experienced loan-seekers say getting loan from banks is an uphill task. There are students who could get the loan, but after the deadline for fee deposit had expired!

     

    DOCUMENTATION TERMINOLOGY

     

    Adjustable Rate Loan
    Adjustable rate loan is one where the rate of interest is linked to the Prime Lending Rate. It is also known as "Floating Rate Loan". If you have opted for adjustable rate loan, then you stand to gain if interest rates drop. Likewise you need to be prepared to take the risk when interest rate increase. Therefore, in this case the gain/ loss of interest rates fluctuation is borne by the borrower. The rate on loan is generally revised on regular intervals.

    Application
    A form used to apply for a loan, on which you'll put relevant information about yourself. Also refers to the whole process of applying for a loan.

    Appreciation
    An increase in the value of a property due to changes in market conditions, or for other reasons. The opposite of depreciation.

    Asset
    Anything with a rupee value that you own. Your assets are tallied up when the bank is trying to figure out what it can afford to lend you. You don't have to own something "free and clear" for it to be considered an asset. Say you have a house, on which you owe money to a bank or mortgage company. The amount you owe is considered a liability; the amount you've already paid off is an asset.

    Bonafide
    In good faith, real, not fraudulent.

    Borrower Classification

    Lenders classify borrower based on their personal and professional profile. Most common borrower classifications are:

  • Salaried Individuals
     

  • Self Employed professionals
     

  • Self Employed Individuals.

    Breach
    A violation of any legal obligation.


    Check-off Facility
    This is a facility by which the employer of the borrower agrees to deduct the installment amount from his salary and pay the same directly of the lender. In some cases the lender imposes special lien on payment of borrower's provident fund. This facility offer's a kind of security of the lender towards repayment of loan.

    Co-applicant
    A person who applies to the lender along with the applicant to avail a personal loan. The income of the co-applicant is clubbed with that of the applicant to arrive at the maximum loan amount. Some lenders insist on a co-applicant when the amount of loan sought is more than certain pre-specified limit.

    Collateral
    Assets that can be used to back up a loan which you obtain with a finance company. If you fail to pay the loan as agreed, the finance company can take these assets.

    Collection
    The process of forcing a borrower to pay what he owes on a loan and, if it comes to that, to proceed with foreclosure.

    Compound Interest
    The interest calculated on the principal balance as well as the accumulated interest is called compound interest. It is usually higher than the simple interest.

    Credit History
    The record of how you've borrowed and repaid debts.

    Credit Limit
    The maximum amount that you can borrow. Your credit limit is calculated based on a lot of factors such as your personal profile, credit history, net income, etc. More commonly it is a multiple of your net income.

    Credit Report
    Credit report is a documentation of the credit history containing information about your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.

    Credit Scoring System
    A Statistical system used by creditors to compare your credit history with the credit performance of other consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points- a credit score-helps predict your creditworthiness.

    Debt
    An amount of money owed by one person, company, organization or other entity to another.

    Default
    Failure to meet legal obligations in a contract; specifically, failure to make the monthly payments on a mortgage. IF this happens, you can end up losing the house.

    Delinquency
    Failure to make payments on time. This can lead to foreclosure.

    Depreciation
    A Decline in the value of property or asset over time.

    EMI
    Equated Monthly Installments (EMI) are installments towards repayment of a loan, lease or hire purchase agreement. As banks and finance companies conduct very high volumes of retail business it becomes easier for them to monitor and manage installments that are constant in amount.

    Guarantor
    The person who promises to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

    Guarantee
    A promise made by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

    Fixed Rate lending
    When in a contract of loan the rate of interest is fixed and there is no clause as to the change in the rate of the interest with some other rate as the benchmark it is called Fixed Rate Lending. In this type of lending the rate of Interest does not changes during the period of the contract.

    Flat Rate of Interest
    A method of calculating the interest rate based on the total outflow of money. The method does not take into consideration the time value of money and is thus a crude measure. Flat rate of interest is the % paid in excess of the finance amount, and is calculated on per year basis.

    Hypothecation
    A hypothecation is an equitable charge on the goods without possession, but not amounting to a mortgage. The contract is done to secure a debt.

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