How an Education Loan Default Can Lower Your CIBIL Score
Irregular payments on a loan are the worst things to happen to CIBIL scores. They can add to your burden like few other factors can, so your priority needs to be on how best you are going to close as many outstanding payments as you can. However, default on an education loan, and things can get really nasty really fast.
- All education loans are designed with pay structures that come into effect only after you have completed your education and are employed. You use what you earn from your work to pay it off, especially the EMIs that such loans have against your name.
- There will be a grace period, though not for too long, after education ends and job-hunting begins. Land a job fast and get started on paying off those dues.
- Mostly taken out in a year’s fourth quarter, education loans are fast growing in demand and importance.
- We can throw a cartload of frightening statistics about how badly these loans are treated and left with dues for years on end. To offer you a taste of the madness, 2014’s fourth quarter saw more than 1,30,000 education loans going out but as of March 31 2015, the gross pending credit stands at a jaw-dropping INR 63,800 crores!
- Banks and other financial institutions do understand how tenuous the job market can be and just how many bright minds are out there without a job to pay back these loans. But tell that to the world markets, where such numbers will gradually influence the longer things are stretched out.
It is for this reason that ‘steady haste’ is demanded of borrowers who leave college only to have their CIBIL determine a rather shaky financial future, all because full-fledged effort has not been invested in closing their education loan payments. The EMIs will certainly have reasonable interest rates, compared to say personal, car, and home loans. It boils down to planning ahead and saving in bulk.
- You will need to work double-time, even shifts, and then some. Only then can you hope to live steady while paying off your education EMIs, sending some home to the family, and getting on with other important factors that need a bit of finance to keep them ticking.
- The juggling act may seem impossible at first, but you can indeed achieve it. Think of interest compounding itself. More than any motivational speech the scary nature of numbers and how fast they can accumulate should be enough inspiration. If only they collected as fast in your savings account J.
- You probably also have other debts that need your attention. Once the priority loan (education) has been fulfilled, move to the next. Or distribute as you see fit, but close the education one as soon as you can.
By having a low CIBIL score, you show that you have unreliable income supplementation, using short-term credit where you can. Can you do without tuition in college? How many part-time jobs can you handle?
These and similar practical questions can help you plan ahead and make all the difference in closing your education loan’s outstanding amounts and avoiding a default.