Amrita Sethi is an MBA student who is going to complete her studies this year. Having a bachelor’s degree in engineering already, she expects to enjoy a fulfilling career in the IT industry with the added qualification. However, there is one thing that’s constantly worrying her. She took an education loan of Rs. 5 lakhs, and is now worried whether she will be able to repay it since she hasn’t been able to get a job although many her friends already have.
The story of Amrita isn’t quite new. Every year, thousands of students, many of which exceptionally bright, are engulfed by stress and anxiety as the last days of their college come closer due to the burden of education loan. However, there is no reason to panic in situations like these.
What happens if miss your first EMI?
One of the first things to understand about education loans is that the rules for these are far more forgiving than other types of loans such as personal loans or car loans, both in terms of education loan interest rate and the overall system of repayment. This is because these loans increase the value of the borrower (good education opens doors for better jobs and better life) compared to personal loans which are used for marriage or medical expenses, etc. and don’t really increase the worth of an individual.
Most education loans also offer you a moratorium period which is the time offered to you after you have completed your studies to get a job and settle down. Usually, it varies from 6 to 12 months which is enough for a person to find a well-paying job.
Now, in case your moratorium period has passed and if you still haven’t started the repayment, then the bank may contact you. However, they usually wait at least 90 days before taking action.
If you are unable to repay your loan, then you can contact your bank and request for some more time. If your problems are genuine, then the bank may comply and defer adding your name to the loan defaulter list. However, bear in mind that the longer you take, the more interest is collected that you have to pay eventually.
Powers in lenders’ capacity
If for whatever reason, your bank refuses to grant you a grace period or if you fail to convince the bank, then it may take any of the following measures:
1) Sending a Legal Notice
If the bank is unaware of your situation and you haven’t tried to contact them at all, then they may send you a legal notice as a reminder for the payment of the EMI. It’s usually sent by the company’s legal advisor.
2) Contacting the guarantor
Lenders understand that most of the student loans are availed by youngsters who have limited to no history of credit repayment. Thus, in most cases, the banks approve the student loan only when there is a guarantor involved, which is usually a parent or guardian. This person takes the responsibility for the repayment on the student’s behalf.
If you don’t start paying the EMIs on time, then the bank may contact the guarantor and seek their response to the situation. They may also send a legal notice to them and ask for the repayment lest the name of the borrower should be put on the loan defaulter list.
3) Seizing the Assets
If the education loan was obtained by offering an asset such as gold, car, or shares, etc. then the bank also has the right to seize these so that it can sell them to recover the education loan money. What’s worse, it can seriously damage your cibil report too and pose all kinds of challenges when you need a loan in the future. You may never qualify for a good education loan interest rate, or get a loan at all.
Conclusion
As mentioned earlier, the repayment rules for education loans are less stringent than other forms of loans. However, in the end, a loan is still bound by a legal agreement between a student and the lender. Thus, you should do everything in your capacity to repay the loan as per the discussed terms. It’s best that you start applying for jobs as your last day in the college nears. This way, when you graduate, you will already have a job to help pay the EMIs.