Education loan: Make timely repayment your priority for a better credit history

August 16, 2016

In a few days, a lot of students would be taking the flight abroad to pursue higher studies with the academic session beginning around September. A large number of those chasing their dreams would have availed an education loan to meet their tuition and other expenses.

While you study hard, there would be the unseen loan repayment requirement hanging over you. While that should not be your concern right away if you have begun your studies, but as the years pass by you will be required to honour your repayment obligation. Also, there are senior students who availed loans in earlier years and whose repayment period could start shortly.

Repaying education loan is a important stepping stone to learning financial disciple early in life says Ajay Bohora, Co-Founder, MD & CEO of HDFC Credila Financial Services Pvt. Ltd (An HDFC Company).

"Education Loan is usually the first loan for the students & can be the first step towards learning financial discipline for the students and benefit from that financially over the entire life span. Timely and disciplined repayment of education loan can help students build the foundation for creating a great credit history and very high CIBIL scores. With great repayment track record on education loans, students can avail other loans in the future at competitive rates," says Bohora.

Financial planner Anil Rego says students should make loan repayment their priority after studies. "It is important that you do not start your working life with the sword of massive debt over your head. Make repayment of debt a priority. This is applicable not just for your student loan, but for all loans through your life. Education loan is likely to be your first borrowing and the discipline in clearing it would be a practical lesson for life," says Rego, founder and CEO, Right Horizons.

Rego advises to be careful on expenses during student life. "Do not allow any unnecessary expense or investment come in the way of the loan repayment. What might seem an excellent opportunity to multiply your money could be a losing investment. Even purchasing a house or vehicle can be delayed till the loan is paid up. Instead, look for scholarships and jobs on or off campus. The job will provide experience and an introduction to a practical work environment, and can help reduce the financial burden," he said.

Naveen Kukreja, CEO & Co-founder, Paisabazaar. Com says repayment of student loan will also be beneficial for the guarantor. "Non-payment of loan would damage both student's and guarantor's/co-borrower's credit history," he said.