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Homework to do Before Applying for an Education Loan

Highlights

  • Looking for an education loan? Ensure you do your homework well
  • Search for institutes that offer good placements and lenders that offer education loans at attractive interest rates

In the event of insufficient funds, you will need an education loan to complete your higher studies. But you will be served well if you apply for the loan after doing some homework. First, you need to check your academic results, college or university where you want to take admission, and the course you opt for. Why these are important is because using these the lender knows your eligibility to pay the loan in the future. A student with good academic performance and college that provides placement is perceived to be good by the lender and it approves such cases faster. Read this post and know more about the education loan and its preparation.

Search College or Educational Institute for Your Higher Studies

Before you apply for the loan, it is necessary to secure admission because based on the expenses for your studies the bank or NBFC will lend you money. You need to provide the admission letter and list of fees & charges to the lender. The interest rate for your education loan could be low if you secure admission to a college or institute that promises placement after the course completion. You can also borrow money from bank or NBFC for part-time or vocational courses to get a lump sum of funds quickly for the admission.

Security & Co-applicant

You can borrow money from banks for higher education if you have collateral security or co-borrower support. The loan is jointly borrowed so in case of unemployment the EMI paid on time. Your parent or legal guardian can be the co-applicant. And the lender requires the income and other details of the co-applicant such as credit score, repayment record, current obligations, etc.

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The lender may require security for the borrowed amount if your loan exceeds above INR 7.5 lakh. Your collateral could be any tangible asset like an FD, Land, Bonds, Insurance policy, etc.

Compare Interest and Loan Amounts of Different Lenders

To apply for an education loan, you need to take care of the interest rate the lender may charge on your loan. Also, don’t forget to check how much you can borrow. See this table and know which lender offers you the maximum loan at reasonable interest rates.

Bank/NBFCMaximum Education LoanInterest Rate (per annum)
State Bank of India (SBI)INR 1.5 Crore6.90% - 9.30%
HDFC BankINR 20-30 lakh9.25% - 13.68%
Tata CapitalINR 25 lakh10.99%
Axis BankINR 75 lakh13.70% - 15.20%
ICICI BankINR 1 Crore11.25% - 11.75%
Kotak Mahindra BankINR 20 lakh12.33% - 16.00%
YES BANKNeed-based12.00% - 14.00%
RBL BankINR 10-20 lakh14.15% - 16.15%
Standard Chartered BankINR 80 lakh10.99% - 19.00%
Federal BankINR 10-20 lakh10.05%

Margin Money

There is a margin over your borrowed amount if you borrow an education loan above INR 4 lakh. As per the RBI guidelines, the margin for higher studies in India is 5% and 15% for overseas education. What is margin money all about? It is the amount that gets deducted from your loan amount. To compensate for the margin you can use scholarship or assistantship so the expenses are covered for your higher studies without trouble.

What is the Moratorium Period?

You get a repayment holiday up to 12 months before the repayment starts. And during this period, the student has to ensure that they’ll secure a job. Because the repayment is dependent on the student’s future income which he/she will earn after the course completion. The lender charges a simple interest during the moratorium period, which you can pay if you want to reduce the loan burden. You may also get a concession up to 0.50% if you service interest during the moratorium period.

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Documents

After taking care of the above-mentioned factors, check the documents you need for the education loan.

  • Aadhaar Card
  • PAN Card
  • Voter ID card
  • Passport
  • Visa (if applying for overseas studies)
  • Salary slip (only for co-applicant)
  • ITR report
  • Bank Statement
  • 10+2 Marksheet or Certificate
  • Admission letter
  • Fee & charges list

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