The goal of getting into your dream college or going abroad for higher education is what many students strive for. Education is becoming more expensive due to the high inflation rate. In addition, many parents might have difficulty funding their child’s education due to the inflation and rising cost of education. An education loan may be the best solution if you pursue management or any other course.
Graduating from a reputable institute is a stepping stone toward a rewarding career in today’s highly competitive world. Due to the rising education costs, most parents prefer applying for an education loan to cover their child’s tuition. The average size of an education loan has increased significantly from 5.73 lakhs in 2015 to 8.50 lakhs in 2018, according to a study by CIBIL.
Getting the best education loan offer is essential for parents because it is a substantial financial commitment. A student can apply for a loan in a public sector, a private bank, or even a non-banking financial company (NBFC).
Before applying for an education loan, keep a few essential things in mind to avoid any financial complications in the future. Here are a few critical things you must consider while applying for a loan.
Increase Your Chances Of Loan approval
Factors like Academic records, institute/course opted, and the amount of loan you are seeking are a few factors that play a crucial role in loan approval. Make sure you choose a reputed institute as the chance of getting a loan is higher for such institutions while offering better job prospects. The interest rates may often be low for premium institutions such as IITs and IIMs. There are high chances of better employment after the course completion, and the risks (of unemployment) are common, so the interest rates will be lower for such premium institutions.
Assess and compare offers: There are high chances of better employment after the course completion. The risks (unemployment) are low, so the interest rates will be lower for such premium institutions. Compare offers from multiple lenders before deciding. It is possible to compare interest rates across various banks using aggregator sites. Choosing a loan with the best interest rates and flexible repayment options will be easier.
Keep Documents Ready
Before applying for an education loan, getting all the necessary documentation is essential. Documentation requirements vary among lenders. In most cases, parents’ income-related documents and their credit report are also required, as students usually don’t have income proof of their own at that age.
A co-applicant, usually the parents, is also required. Make sure your documents comply with the lender’s requirements.
Most lenders do not require collateral for loans up to Rs 4 lakh; for amounts up to Rs 7 lakh, collateral isn’t needed, but a third-party guarantor is. For loans of a higher amount, a student must provide total collateral.
For certain premium institutions, lenders will give a concession when it comes to property papers, insurance papers, and gold.
Consider The Processing Time
Depending on the lender, it could take as little as two weeks or as long as two months. Borrowing against security, such as a fixed deposit, can be instant. The processing time also depends on the loan amount and collateral requirements.
This time is primarily required for pre-sanction inspections and verifications of co-applicants, residences, and educational institutions. Keep a buffer of two months before you need the loan disbursed.
Eligibility And Margin Criteria
Both public and private banks provide many loan options. Compare the opportunities to get the desired loan amount at lower interest rates. Check out the eligibility criteria of the lenders and then apply for the one that works best for you in terms of costs, interest rate, turnaround time, etc.
Lenders often require a margin for loans with high amounts. A student has to pay the required amount to the lender or institute before the lender disburses the loan amount to the institute, explains the Bank of Baroda executive.
Repayment
Depending on the parent’s income, the government may provide a subsidy on loan repayment. The interest rate can be lowered through various schemes. Many banks offer discounts on interest rates for girl students in particular. Non-repayment of education loans can be a concern if employability is low.
One should be sure that he/she who has taken the loan can his monthly installments after completing the course. Always remember the sooner you repay the loan, the better it will be to avoid a higher interest rate due to late payment. One can take an education loan but read all the terms and conditions before taking the plunge.
Ensure that you understand the lender’s collateral requirements before applying for a loan: Lenders can provide 100 percent of the loan, subject to the amount. For loans up to INR 4 lakh, margin money (self-finance) is required. For higher education in India, 5% of the funds must be self-financed, while for education abroad, 15% must be self-financed. No collateral is required if the amount is less than INR 4 lakh. An asset must be pledged as a security to the bank if the borrower fails to repay the loan for funding above INR 7.5 lakh, where a guarantor is not required.
Maintain a good credit score: A parent or guardian is a guarantor when a child applies for an education loan. It is also the case if a student does not have a credit history and the lender requires a friend or family member to guarantee the loan. For a loan application to be approved, the guarantor must have a good credit score. Lenders may also offer better rates to applicants with credit scores of 750+.
Plan your repayment strategy: Although interest begins accruing from the first month, students may be given a moratorium period of one year before starting to repay the loan amount. This grace period allows your child to pay the EMI after this period but allows you to repay the EMIs early and speed up the repayment process.
Additional benefits: An education loan also comes with certain perks, such as a tax deduction under Section 80E of the Income Tax Act. Since education loans are usually the first student loans, they also help build a positive credit footprint.
FAQ’s
Can I get 100% educational loan?
Education loans indeed cover 100% of education expenses, but there is a limit to how much coverage is provided for expenses.
Can we cancel the education loan after 1 year?
A student loan can be canceled after a year. To cancel an Education Loan, you must adhere to specific terms and conditions. Along with that, you may also require to provide sure proof to meet those specific requirements.
What all are covered in education loans?
Your tuition and your education loan will cover several things like hostel fees, mess fees, exams, library books, and even traveling and other expenses like educational projects.
Which bank provides the cheapest education loan?
Central Bank of India provides the cheapest interest rates starting from 6.85%, where students can take a loan and study in India and abroad. Female students can get concession rates. Also, they can get generous loan amounts that can cover all their expenses related to the courses.
