Parents as guarantors for education loans Benefits and risks

Description:Before you apply, it is vital to learn about the conditions of your education loan. This includes the advantages and disadvantages of having one of your parents be an co-applicant on an education loan. Find out more about this important aspect of loans for education.

The benefits of education loans are tremendous to cover the expenses that are associated with higher education. Because a lot of students do not have credit histories and so, the majority of lenders require a co-applicant.

According to the terms of education loans of many lenders, parents is able to become co-applicant for their child. In this scenario their credit score will determine their educational loan eligibility. However, becoming a co-applicant comes with certain risks in the event of default.

The size of the average education loan in India is around 25 lakhs, which is a significant financial commitment. Therefore, it’s essential to be aware of the potential risks and advantages of having a parent who is an co-applicant to an education loan. Let’s get started.

Benefits of a loan from a parent co-applicant

A co-applicant for a parent’s loan provides a number of advantages. The benefits include the following:

• More likely approvalWhen parents act as an education loan co-applicant the odds of approval are better. The lenders prefer having parents as co-applicants because it lowers risk of financial loss.
• Higher loan rates You can obtain better terms on loans with the co-applicant of a parental education loan. If the risk for lenders is lower and they are able to offer greater amount of loans and lower interest rates.
• Benefits from income tax Tax benefits for income tax In accordance with rules on income tax, either parents or students is entitled to the tax benefits of education loans. This exclusion under section 80E can be claimed to those who pay the Equated monthly installments (EMIs). This benefit is available on the interest paid to the lender for the education loan.

Risks associated with a parental co-applicant on a loan

A co-applicant for a parental education loan has certain risks. A few of them are:

• Financial liability The applicant is legally liable to repay when the loan for education is secured or unsecure. Any ambiguity from the student could result in a significant burden on parents. They could even be required to pay the EMIs using their own money.
• Effect on your credit scores If a student fails to pay for EMIs in time, it could negatively affect the credit score of that parent, who was the loan co-applicant. In the end, parents could face financial difficulties later on.
• Financial uncertainty A parent who is a co-applicant for a loan can impact their financial stability over the long term. The additional burden to repay the loan can reduce the retirement fund and expose them to issues at later times in their lives.

Things to take into consideration when selecting a loan for parents co-applicant

Here are some of the most important aspects to take into consideration when selecting parents to be co-applicant to an application for education loans.

• IncomeThe parent who is the co-applicant needs to have a steady revenue source. This can help applicants receive a larger loan amount and lower rates of interest.
• Age Age The applicant must meet the conditions of an education loan regarding age requirements.
• Financial stability The parent loan co-applicant must be able to maintain a steady financial position. This will allow them to live comfortably even if they have to take care of other financial obligations.
• Legal issues Parents and students must be fully aware of the loan terms. This can help prevent any legal problems or negative effect on credit scores in the event of default. In the event that EMIs do not get paid in date, then the bank may take the collateral back or make a legal claim.

Conclusion

IDFC FIRST Bank Education Loan deals are designed to help you realize your dreams of a quality education. The simple application process with low interest rates, fast approvals, as well as higher loan amounts make educational loans offered by IDFC FIRST Bank your most suitable choice for you.

Go Here to fill out an application for the IDFC 1st Educational Bank Loan.

Disclaimer

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