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The uphill climb – The repayment options you can consider

September 23,2010 by: Dallas Browne

Repaying a loan is the hardest part. The interest keeps piling up and does not take into consideration what you job situation is. Whether you have a well paying or not or whether you have a job or not do not feature anywhere. The loan has to be repaid. Student loans have a lesser interest rate than other loans. Student loans function differently too. The loan repayment and interest payable is only calculated once the student in question finishes the course. To an extent, this is the best deal you can get. But if you fail to find work after your course, then the situation will get a little difficult.

Banks and other financial institutions have various repayment options that you can choose from. The most basic repayment option is the fixed amount that you pay, calculated on the amount borrowed and the time required to pay back the loan. Some private funding agencies put down a fixed amount beyond which your interest cannot go. Some private student loans have the option of paying in amounts that will be determined by the salary you get. This sort of repayment option is ideal for those who do not know for sure, the type of job they will get after their education. The interest and total amount due each month is fixed according to the salary statements you furnish

Banks need to constantly come up with newer repayment options considering the rate of unemployment. The point, however, is that the applicant chooses the best option available at the time of signing the loan application papers. The other commonly chosen option of repayment is the stratified loan repayment scheme. The total amount due each month is low at the start and is gradually increased with time. The interest is calculated as compound interest and the change from one amount to the next happens in slotted time that is pre-set. For newly employed people expected to get higher salaries, or are sure of a near future promotion, this scheme makes sense.

In addition to choosing the right repayment scheme, students applying for student loans must also consider the amount borrowed and the field they wish to pursue a career in. For example, it makes little sense to borrow a huge sum of money to pursue fine arts. The future is always a gamble in the arts field. While many, many people make good money as musicians or artists, many don’t. The prospect of repaying thousands of dollars in loan repayment when you are trying to cut it as an avant-garde painter, albeit from the best design school, is a scary one. On the other hand, many people think it safe to take huge loans to pay for business school. The returns from such courses are almost always assured.

The long and short of it is that one must have realistic expectations of the future and not over- borrow, beyond one’s ability to repay. Private student loans generally give you as much as you declare you need. It’s important to check and recheck fine print before you sign the dotted line.

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