Personal Loan VS Educational Loan

As the cost of education rises, it becomes difficult to fund higher studies from one’s own pocket. That is why taking loans to pay for the college fee is becoming quite common. The two most common financial options that one has are personal loans and education loans. There are different parameters based on which one can decide which option best suits one’s situation. If you too are seeking a loan for higher studies, this article will help you compare these two choices and help you make a sound financial decision.

An education loan is favoured because of the following reasons.

1.      Moratorium period

This period is referred to the time during the loan period when the borrower is not required to pay the instalments. In case of education loan there is a provision of moratorium period. The repayment begins 1 year after the completion of course or 6 months after one gets a job whichever is earlier. The interest during the moratorium period is also calculated on simple interest basis and added to the principal outstanding. You do have an option of paying the interest while you are studying if you have the resources to do so. But in case of personal loan there is no waiting period. The payment of regular EMIs begin as soon as the funds are disbursed. This essentially means that someone needs to shoulder the burden of repayments (on the borrower’s behalf) till the time one is studying and is without a job. In case your parents or relatives are not in a position to do this, personal loan no longer remains a choice. An education loan is better from this aspect, as it allows sufficient period to a person to settle in a job before the burden of EMI starts.

2.      Interest rate

An important factor that is taken into consideration while choosing among different loan options is the cost of borrowing. Since education loans have a specific purpose of providing a financial backing to students, they usually have a lower interest rate than the personal loans. Axis bank personal loan interest rate varies from 15-24% whereas education loan interest rate is between 10 to 13%. The processing fee is also lower in case of education loan. Hence it makes financial sense to go with this option.

3.      Loan tenure

Personal loans are usually offered for a period of maximum 5 years. Whereas education loan tenure goes up to 10 years. A longer tenure means that one can have lower EMI amounts which can be easy on one’s pocket.

4.      Loan amount

It is easy to get a personal loan of 4-5 lakhs, but if the education cost is much more than that, then personal loans sometimes not even remain an option. Maximum amount of axis bank personal loan is Rs 15 lakhs. One can get an education loan of Rs 50,000 to 1 crores depending on the kind of course one has enrolled for. Longer tenure of education loans helps in making the EMIs affordable even if the loan amount is high.

5.      Tax benefits

Personal loans do not offer any tax benefits. Interest payment on education loan qualifies for tax deduction under Section 80E of Income tax act. This benefit can be claimed after the loan repayment starts and for a period of 8 years. Such benefits reduce the total cost of taking loans.

But education loan comes with its own set of disadvantages. There are a lot of formalities during processing, and it takes a long time before the funds get disbursed. Banks have stringent eligibility requirements. They ensure that the applicant’s name is not in the loan defaulters list. They check the CIBIL score of the individual to analyse his past credit behaviour. With personal loans one can get funds instantly. If you meet the requirements one can get the loan within 3 days. There is no restriction on how the money is spent.

Weigh the pros and cons of both these options and consider which factors are more important to you considering your personal situation. In case your family can support the EMI payments till the time you study and the loan amount isn’t too high you can consider personal loan. However from the point of view of interest rates, tax benefits and loan tenure an education loan is a better choice.

4 Tips to Restore Your Credit Score in the Last Quarter of the Financial Year

It can take months, if not years to build a high credit score. However, many times it takes just one wrong decision or a single instance of carelessness to ruin your report badly.

Fortunately, you can reverse the damage in most cases if your committed to it and willing to make a few small sacrifices.

As we are nearing the final quarter of the financial year 2017-18, it’s a good time to improve CIBIL score and get everything back on track.

The following are the top 4 tips to restore your CIBIL score in Q4:

1. Diversify Your Credit Portfolio

How does report look like? Does it contain repayment details of a credit card, personal loan, home loan, etc.? Or is it unidimensional, with a credit history of only a single form of credit?

If your credit report doesn’t have a variety of credit forms, then maybe it’s one of the reasons why your score is not up to the mark.

To solve this problem, learn about how to check CIBIL score and CIBIL report and see what your financial history comprises of. If there are just credit card repayments, then maybe you can apply for a small personal loan or a car loan. Similarly, if it contains only the repayment of a home loan, then maybe you can apply for a credit card.

Diversification of credit portfolio is one of the simplest and fastest ways to improve CIBIL score in the final quarter of the current fiscal year.

2. Pay Your Credit Card Debt in Full

If you have been enjoying the convenience of minimum payments of the credit card bills for several months, then now is a good time to repay the accumulated debt.

Although minimum payments allow you to prevent penalties on credit card payments, they lead to high debt accumulation. Thus, you should always strive for full payments.

By taking care of your entire debt you can observe a major improvement in your CIBIL score. For even better results, it’s best to start repaying all your future credit card bills in full and on time.

3. Check Report and Remove Errors

A large number of people still don’t know how to check CIBIL score. However, what’s more unfortunate is that even those who do, tend to underestimate the importance of the same and end up with a low score.

To ensure that your credit report stays healthy and up to the mark, it’s strongly recommended that you review the same every 3-4 months.

If it’s been a long time since you checked your report, you should do it once again now that only a few months are left for the FY to end.

In doing that, you can identify errors and mistakes which when rectified, can improve your score. You can also find out about unauthorised transactions that may result from a case of identity theft. Thus, the benefits of frequently reviewing your report are many.

4. Limit the Credit Utilization

There is nothing wrong with using credit cards for payments, shopping, and other kinds of transactions. In fact, depending on what kind of card you have, you can actually save money by spending money via reward points and cashback offers. However, in all this, you must pay attention to your credit utilization.

If you want to improve your credit score, then it’s important to keep your credit utilization below 30% to 35%. So, to take an example, if the limit on your credit card is Rs. 1 lakh, then you should try to spend only Rs. 30,000 to Rs. 35,000 using the same. For other payments, you can use cash or mobile wallets, etc.

In a large number of cases, restoring credit score can take several months. However, the tips given above are most likely to get the desired results faster so that by the time you reach the next financial year, you can start with an improved score.

Which is the Best Credit Card?

If you are looking for a credit card, you will be surprised by the number of options available. While it may seem like a good thing as this means there is card available that suits your exact requirement but finding the right card amongst so many options available could be a challenge. So here we try and help you choose the right card as per your requirement.

Understand Your Requirements:

As we said earlier there are so many options that making a choice could be challenging. The first thing is to understand what your requirements are and then choose a card that matches it.  Without being sure of your own requirements choosing a suitable card for yourself is not possible. If you travel a lot then it makes sense to have a card that can be used with ease internationally, if you spend a lot on shopping then a card that offers an attractive reward structure and so on. It is also important to be sure about the kind of credit limit you want. A low credit limit could harm your credit score if you usage is usually higher than 30% of your sanctioned limit but your credit limit cannot be based solely on your choice. It depends on your income levels and also the eligibility criteria as specified by the card company.

Best Credit Cards As Per Features:

Below is a list of few cards that suit different requirements and hence you may find it useful.

Ø  Citibank Premier Miles Card:

This card is best suited for those who travel a lot. The user gets access to premium airport lounges across the world, 10000 miles are awarded on activation and subsequently there is attractive reward structure that lets the user earn miles on bookings and other transactions. These miles can be redeemed at over 100 airlines. The annual fee is steep at Rs. 3000 which may prove to be a deterrent and the card is issued only to those who already have another credit card, so it is not suitable for first time card applicants.

Ø  Standard Chartered Platinum Rewards Card:

This card comes at a nil annual fee; the applicant may be charged a joining fee of Rs. 250 upfront but that will be waived off when the card is used within first 90 days. This card is suitable for salaried people who use the card for a host of transactions. The rewards structure includes reward points for registering for online banking, using the card for dining and fuel and also cash back on Uber rides.

Ø  SBI Simply Click Credit Card:

This card is best suited for people who are in love with online shopping. The annual fee of Rs. 499 can be waived off if the user spends Rs. 1 lakh within a year of getting the card issued. The card is issued only to salaried applicants. Users get a voucher from Amazon worth Rs. 500 on joining; the card offers an attractive reward structure when shopping online with special benefits for Amazon, Cleartrip, Fabfurnish and many more. You can also get waiver on fuel surcharge and get an e-voucher from Cleartrip. 

Ø  Standard Chartered Super Value Titanium Card

This card could be a great choice for first time applicants who spend a lot on fuel, phone and utility bills. There is no annual fee for the first year, second year onwards there is annual fee of Rs. 750 which is waived off on case the user spends more than Rs. 60,000 in a year. The joining fee of Rs 499 is also waived off when the user spends more than Rs. 30000 in a year.  The user gets 5% cash back when paying for fuel, utility bills and phone bills.

Ø  ICICI Instant Platinum Card:

As the name suggests this card is available instantly, so if you are in a hurry then this card is for you. This card also offers another advantage; it is suitable for first time applicants who are finding it difficult to get a credit card issued for some reason. This card comes with no annual fee and can be issued against an FD which makes it a great choice for those who do not have running source of income.  The credit limit of the card is linked to the deposit amount. The card also comes with some attractive rewards but will be difficult to get one without holding a deposit with ICICI bank.

As we said right at the onset of this discussion the choice available for credit cards is huge and it’s not possible to discuss all of them. We have just picked a few based on the different features and utility they offer. There are many great choices available depending on what you need.

What To Do When You Have Too Much Debt On Your Credit Card

You would rarely find a financially independent person in current times who do not own credit cards whether single or multiple, multiple is more likely.  Most shopping and other transactions whether online or offline are done using the credit cards. These cards not only offer the most obvious convenience of buy now and pay later but also eliminate dependence on cash and of course there are attractive reward structures. So here is the good part but there is always a flip side, not being careful with their use could easily mean that you have too much debt on your credit card. What can you do if you find yourself in such a position?

Dealing With Too Much Debt on Your Credit Card:

Too much debt on the card has a lot of problems associated with it. This can be the cause of low CIBIL score, a high debt means the high incidence of interest and fines and of course it could be a potential debt trap. Here we offer a few suggestions that can help you deal with the situation:

Ø  Consider a Balance Transfer:

A balance transfer is an option of transferring the balance from one credit card to another; this could be done in the case of multiple cards too. While even after opting for a balance transfer you still have to pay the dues but you get a reprieve of 90 days in this case. The new card company allows you a credit free period of 90 days which may give you some time to get your finances in order and then pay the dues. Additionally, you could opt to shift your balance to a card with lower APR, thereby reducing your interest cost.

Ø  Start Paying Dues With Highest Interest Cost:

Credit card debt is known to be very expensive but there is a variation in the interest charged by card companies depending on their policies. APR (Annual Percentage Rate) on credit cards could be as high as 36% in certain cases. So when you have collected a large debt on your card, the first thing to do is to check for the APR of each card. While it is not advisable to miss paying any card dues but it’s a good idea to focus on the one where the interest cost is highest and pay that one off the fastest to reduce your interest cost and burden while continuing to pay the minimum dues on the rest.

Ø  Pay the lowest overdue balance first:

Another strategy that one could adopt is to start with clearing the dues on the credit card that carries the lowest outstanding balance. If you have more than one card then it is obvious that all cards will not have the same outstanding balance. Pay off the lowest balance first so that at least one of the cards balances is off your report. Then you could go on to the next credit card balance. So you could pay the entire dues on the card with the lowest balance and for the rest pay the minimum balance in the meantime.

Ø  Start Being a Disciplined Card User:

This may seem to be the easiest of all the above suggestions but yet the most difficult one to follow. Most likely (barring a few unexpected situations like a medical or personal emergency), the cause of too much debt piling on your credit card is being undisciplined while using your credit card. Spending more than you can pay at the end of the month, being an impulsive spender, paying only the minimum amount due on your cards frequently are some of the reasons that can lead to this situations. Thus being disciplined in paying you full dues and not carrying them forward and not missing any payments can help you overcome this problem. Budget your card expenditure and stay within it, avoid impulsive buying so that you do not add to the already existing debt burden.

Well, in an ideal situation one must not pile up too much debt on their credit card but in case this has happened, little planning and disciple can help you deal with the problem.