By Mr. Harshala Chandorkar, Senior VP, CIBIL
It is vital to understand that education loan is a credit facility provided for the benefit of deserving students so that lack of finance does not hamper their educational aspirations.
Like any other form of credit, education loans have to be repaid once the student completes his / or her course & gains employment. Also, like any other loans & credit cards, education loans are also reported to the credit information company and get reflected in the borrower's credit report.
Repayment on an education loan generally starts within 6 months of the student taking up a job / or one year after the course ends, whichever is earlier.
Credit Information Report..!
An education loan default occurs when the borrower fails to repay the education loan EMI's (Equated Monthly Installments). Defaults on repayments of education loans will reflect in the borrower's credit information report & negatively impact his / or her credit score. Also, in more developed economies, an individual's credit information report and credit score is critical reputational collateral & is being used for multiple purposes by various institutions.
Employers review it before recruiting a new employee; landlords require it before renting out an accommodation & of course, telecom providers check an applicant's credit history for assigning limits.
Damage Credit Score..!
Duly paying your education loan instalments in full and on time, each month, is the best thing that could be done to maintain a good credit score.
On the other hand, missing payments can damage the credit score badly. Of course, if someone else is taking loan on your behalf, such as parents, then it is their credit history & credit score that will be affected, not yours.
Nevertheless, if you find it difficult to repay your education loans, consider an option of negotiation. Banks are open to negotiation. Request the banker to increase your loan repayment term and settle for a lower EMI. This may help reduce your burden significantly.
About the author..!
Mr. Harshala Chandorkar is Senior Vice President (Consumer Relations), CIBIL
SrC: FC and ET
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