Tips to navigate the complexities of international student loans

What you need to know before you sign on for an international student loan

Updated - July 08, 2023 04:07 pm IST

Published - July 08, 2023 03:51 pm IST

Start to build your credit history early, it can help you get lower interest rates and higher loan amounts.

Start to build your credit history early, it can help you get lower interest rates and higher loan amounts. | Photo Credit: Freepik

Many students who opt to study abroad often take a loan to cover the costs of tuition, accommodation, and other expenses. Taking an international student loan can be a challenging and complex process. The following tips can help make the process easier for students.

Research: Conduct thorough research on your loan options. There are many types, each with its terms and conditions. Some may have a lower interest rate but require a co-signer, while others may have a higher interest rate but do not require a co-signer. Further, certain loans may be restricted to specific countries or institutions. In addition, it’s essential to understand the terms and conditions such as interest rate, repayment duration, and any fees or charges. Read the fine print carefully and ask for clarifications. Don’t fall prey to any unanticipated fees or penalties later.

Repayment: Certain loans may require immediate payments, while others may provide a grace period after graduation. The most common is standard repayment, which requires the borrower to make fixed monthly payments over a predetermined period. Graduated repayment plans start with lower payments that increase over time. Income-driven repayment plans are based on the borrower’s income and can help one repay in manageable monthly installments. Choose according to your financial circumstances and needs.

Credit history: Start to build your credit history early, it can help you get lower interest rates and higher loan amounts. A credit history is a record of a person’s borrowing and repayment activities that lenders consider when evaluating loan applications. To build a good credit history, get a credit card and use it responsibly. Pay off debts on time and ensure your credit reports are accurate.

Co-signer: Co-signers are usually parents, relatives or friends who have a strong credit history and agree to be responsible for repaying the loan if the borrower defaults. However, co-signers take significant financial risks by agreeing to sign the loan. So, it’s important to make sure both parties understand the terms and obligations of the loan agreement.

Loan comparison website: These sites allow students to compare multiple offers from different lenders. Students can view an analysis of interest rates, repayment terms, and other fees. Also, these can help students help students find loan options tailored to their specific needs and budget.

Money transfer options: To pay your university fees or for foreign bank deposits, you can use any financial institution. Not just the one that provided the student loan. Traditional banks usually have high margins (4-7%) for currency conversion on outward remittance. Also, they may have hidden fees in fine print and a slow process. Aggregate banks and non-bank remittance providers have lower fees (0.5 to 1%). So compare exchange rates and choose the best option. Student loan remittances are typically in lakhs and savings can be quite substantial when using such a service.

Tax Collected at Source: Money transfers abroad from a student loan are charged 0.5% TCS (Tax Collected at Source) on amounts above Rs. 700,000. If the source is personal funds, then TCS charged for transfers above Rs. 700,000 lakhs is 5%. This is an upfront cost, even though it can be claimed when filing your returns. Using a student loan ensures you only pay 0.5% so that more money is available for costs abroad.

The writer is the CEO, Ex TravelMoney

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