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Loan terms 101

Getting an educational loan 🏦 is easy. But you might not know how to get the funding you need. Educational lending is full of confusing bank terminologies that you may not understand. So here’s a brief guide on the conditions and the terminologies associated with Loans.

Over the years, schooling has been costly, and many students need to obtain loans to fund their studies πŸ‘©πŸ»β€πŸŽ“ – you might be one of them. But if you’re thinking about studying abroad, you may need to consider what you’re walking into. Sometimes the conditions of foreign loans that you can see vary from what you’re used to seeing. This guide breaks it down and addresses some of the expectations that you would expect.

1.Collateral / Security

Before they can extend a loan, many loan providers need collateral. Physical assets, including land, are preferred types of leverage, while certain providers may approve other investments. Loans are also measured in terms of the reliability of the security offered. Not all providers of loans need collateral; you have lenders that provide free loans for collateral and co-signers.

2.Co-signer / Co-borrower

While some banks would not consider offering education loans without collateral, some will consider loans depending on the credit profile of co-signors. In certain nations, the term might be known as co-borrower. In different nations, this term implies something different, often utilized for credits for the resources possessed by more than one individual πŸ’πŸ»(for example, property or vehicles πŸš—).

Students often receive loans without co-signers in countries like the US, but it is unusual to find this open to international students.

3.Margin money

It is nothing but a percentage of the total amount πŸ’° (loan) owned by the borrower to the bank.

In other words, it’s the amount of money that’s supposed to be paid up to the bank as a portion of the total loan amount.

Lenders’ educational loans frequently cover just a portion of the overall cost (total amount of loan) and enable borrowers to pay the margin money before delivering the funds. This is not a global norm 🌎 ❌ ; education loans in other countries that often cover the total cost of education may not necessarily require some margin money.

4.Grace period / Moratorium period

When no student loan repayments are anticipated or needed, most college loans have a grace period ⏲️; interest added to the loan balance during this time is compounded, and some learners choose to pay interest during their grace period. The grace period for educational loans also lasts up to six months after completion βœ”οΈof the course.

5.Loan confirmation letter / Sanction letter

This paper πŸ“„ provides evidence of the willingness of universities 🏫 and immigration officials to compensate. To begin applying for a study visa, international students need to obtain this document as soon as possible. Sometimes there are paymentsπŸ’² attached to letters of sanction, though this is not a common practice.

6.Variable Interest Rate w.r.t education loan

Although it makes repayment amounts variable, variable interest rates represent the current state of the economy. Public Indian banks include MCLR interest rate base loans, while private banks are free to set rates of ownership that may consist of any number of factors, including bank income. LIBOR, an independently fixed and publicly transparent rate that aligns with current market trade, is known to many US, UK, and EU lenders.

7.Loan tenure

It is essentially the cumulative length of your repayment cycle ♻️ ; it starts when the grace period ends to the last anticipated repayment date πŸ“…. There aren’t any loan tenure norms internationally. It also depends on how much you owe and repayment loan availability.

8.Monthly payments / EMI

Estimated monthly repayments (EMI) refer to the amount one should pay every month after their grace period expires. EMI is entirely contingent on the tenure πŸ”„ of your loan and the amount borrowed. πŸ’°

9.Fee

Any number of fees can be added to a loan; although some are explicitly explained upfront, some institutions mask prices inside other fees or provide them at a later stage as additional fees.

Popular fees on your study loan, for example, maybe insurance, a currency exchange charge, a processing or admin fee 🎟️, and additional taxes, perhaps.

10.Prepayment penalties

You might know this as penalties for prepayment*

Penalties can apply for paying your loan off earlier ⏳ than accepted, depending on the loan you take. All organizations do not levy these sums, so you should know ahead of time.

11.What is the Annual percentage rate (APR)

Yearly, APR is the most reliable representation of the total cost of your loan. Your interest rate and all expenses are included in the APR, and it allows you recognize the full effect of the fees on your loan. If you compare loans, note that the APR is often higher ⬆️ than the rate of interest. Moreover, it is broken down for your reference, and you can use it as a guide to carry out APR on other loans πŸ’Έ you may be considering. 

We hope you found this blog helpful and it fulfilled your purpose.