Everything To Know About Loan Settlement as A Loan Provider
July 22, 2024
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The college year beginning is around the corner. Are you in the market for an educational loan? With the cost of education reaching stratospheric levels, an education loan has become a necessity today. Many young Indians are aspirational of higher education as the stepping stone to a successful career and wealth formation in later life. Higher education, particularly a postgraduate degree does not come cheap which can range from Rs 10 lakhs for a 4-year engineering course in the IITs to Rs 25 lakhs in a private engineering institute like BITS Pilani. Going abroad to study can entail a price tag of over Rs 50 lakhs.
A personal or an education loan comes without having to pledge any collateral. The key differences between student loans and personal loans include; the specific purpose of the loan; ie., covering education costs only, more affordable interest rates, facility of moratorium period or a grace period before the loan repayments commence, longer repayment periods ensuring lower repayment costs and intended specifically for students. Student loans also require extensive documentation which means a longer approval process. Most financial institutions and banks allow you to borrow without any collateral. But this type of loan also assumes that you will pay all your EMI (Equated Monthly Instalments) payments correctly at the right time and not default on the loan and interest payments.
Student loans are taken as a form of financial aid for continuation of studies. The loan covers the cost of tuition, books, housing, and other living costs. You start repaying your student loans normally after completing your studies and starting a career.
Student Loan Repayments are done in the form of Equated Monthly Instalments or EMIs. EMI payment consists of instalments which have a loan repayment and interest payment component. You must exercise care so that your income and the structured EMI payment are perfectly balanced. The period of EMI payments must not also be very long. Compare market interest rates before you opt for a particular rate for your EMI. Make sure that you make timely repayments on your EMIs to avoid being labelled as a defaulter.
Repayment of any loan requires careful budgeting, planning, and managing your finances and income well. When you are faced with such a large debt, it may seem a daunting task to manage your repayments. With proper financial discipline, you can not only repay your student debt but whittle down your education loan in no time.
To devise any successful repayment strategy, a clear understanding of the loan terms is necessary. Analyse the loan term, interest rate applicable, repayment period, grace period deferment terms etc. thoroughly. Go over your income, and expenses and collate all your outstanding debts. Create a financial budget using a 50:30:20 plan where 50% of all your income is used for your necessities, 20% directed towards savings and loan repayments and balance 30% used for your wants with some portion directed towards loan repayments.
Inculcating a savings habit and financial discipline from the very start of your career will stand you in good stead. The faster you make the loan repayments, the more your monthly instalments will reduce. Using the above planning method, you can structure a robust loan repayment plan which does not strain your finances unnecessarily.
You may be first-time intern, management trainee. If your education loans are large, it would be easier if you take up multiple job assignments. The city which is the location of your job also matters. Living at home helps you save on rent that you would otherwise pay to your landlord. As house rent constitutes the bulk of your expenses, this decision is crucial. Any accumulated savings from part time work during your studies will also help you to build a savings pool which can reduce your loan liability in the future.
To summarize, we provide below is a step-by step guide for enabling the settlement of your education loans
After reviewing the loan terms and assessing your financial situation, go through the following exercise.
·Create a Budget: Develop a realistic budget that includes all your expenses, such as rent, utilities, groceries, transportation, and entertainment. Allocate a portion of your income towards loan repayment.
·Contact the Bank: Reach out to your lending institution to discuss your intention to settle the education loan. Schedule a meeting with a loan officer to review your options and negotiate terms if necessary. Use a third-party loan settlement negotiator if necessary.
·Negotiate A Settlement: Depending on your financial situation, you may negotiate a settlement with the bank. This could involve paying a lump sum amount less than the total outstanding balance in exchange for clearing the debt. Be prepared to explain your financial circumstances and provide documentation to support your request.
·Explore Repayment Options: Inquire about alternative repayment options offered by the bank, such as restructuring the loan or extending the repayment period. These options may lower your monthly payments and make it easier to manage your debt. Your credit rating will be affected in this process.
·Consider Refinancing: If you have multiple loans or high-interest rates, consider refinancing your education loan to secure better terms and lower monthly payments. Shop around for competitive rates from different lenders. You can use a Loan negotiator like SML for this procedure.
·Prioritize Loan Repayment: Make loan repayment a priority in your financial plan. Set up automatic payments or reminders to ensure you do not miss any payments and incur additional fees or penalties.
·Track Your Progress: Monitor your progress towards settling the education loan. Keep track of your payments and regularly review your budget to adjust as needed.
·Celebrate Milestones: Pat yourself on the back for every loan repayment milestone achieved as that means your loan liability has reduced to that extent.
·Remember, communication with your bank, financial lender or negotiator is key throughout the process. Also, bear in mind that apart from your education loan, you may also need other loans like home loan, auto loan, equipment loan and other personal loans during the pendency of your education loan. Completing the payments on your education loan repayments as quickly as possible will be to your benefit.
Sometimes, due to illness, job loss or some other unexpected financial misfortune, you may be unable to meet your student loan EMI payment demands.
In such a case you may use a third-party loan negotiator like Settlemyloan or SML to carry out negotiations with your lending institution. Their help may take four forms:
1) Negotiating a final settlement amount with the lender which is at a discount to the original loan amount. In this form of settlement, remember, that your credit rating may take a beating.
2) Talking to the creditors and averting their pressure tactics.
3) Negotiating lower interest rates or a single, combined loan instead of several distinct loans. In such a negotiated credit, you will be able to enjoy better rates of interest, more advantageous loan instalment payments
You will accrue the benefit of an improvement in your lowered credit rating over time.
To effectively settle your education loan with the bank, creating a comprehensive plan is paramount. Begin by assessing your financial situation, including your income, expenses, and any existing debts. With a clear understanding of your finances, you can devise a repayment strategy that aligns with your capabilities and priorities.
One practical approach is to opt for Equated Monthly Installments (EMI) payments. By spreading the repayment over a fixed period, EMI offers a structured and manageable way to settle your loan. Determine an affordable EMI amount that comfortably fits into your budget without compromising your essential expenses. Additionally, consider making periodic lump-sum payments whenever feasible to expedite the loan closure process and reduce the overall interest burden. With disciplined financial management and a commitment to timely payments, you can systematically clear your education loan, paving the way for a debt-free future.
We can negotiate your settlement so that you become debt free, in most cases without it affecting your credit score.