Things to Remember Before Applying for an Education Loan
Last Updated : April 18, 2020, 5:15 p.m.
Want to study in your desired institution but don’t have the money to fulfill your aspiration? Don’t worry, you can rely on education loans provided by numerous banks in India. As the loan comes with varied interest rates and repayment options, you must evaluate the deal carefully. A loan when taken carefully can help you repay easily and save more without having to compromise on your education. Plus, education loans have a security obligation in some cases. This makes vigilance on your part all the more important. So, let’s check out the aspects you need to consider, in this post.
Look to Grab the Best Interest Rate
You need to check, compare and choose the best interest rate for your education. The reason being the interest rate is directly proportional to the repayment you make over the loan term. If you choose a lower interest rate, it will reflect into lower EMIs and reduced interest outgo over the loan term. To help you compare and select the best, we have put together a list of lenders and their respective education loan interest rates.
| Bank Name | Interest Rate |
|---|---|
| State Bank of India (SBI) | 6.90% - 9.30% |
| Punjab National Bank (PNB) | 6.90% - 9.55% |
| HDFC Bank | 9.25% - 13.68% |
| ICICI Bank | 11.25% - 11.75% |
| Union Bank of India | 7.20% - 10.45% |
| Axis Bank | 13.70% - 15.20% |
| Bank of Baroda | 6.85% - 9.95% |
Qualification of the Student
Qualification of the student is vital to the loan approval. As per some of the banks’ criteria, students are required to secure their admission first. And you can get admission to any technical, graduate, post-graduate, bachelor’s or master’s course in India or abroad.
Does Credit Score Matter?
A credit score of the co-borrower is important. Yes, your parents’ credit history can affect your education loan. So, the co-applicant must have a good credit score so that you as a student can access the loan in a hassle-free manner.
Job Prospects
As you know that the motive of higher studies is to get a good placement in a reputed company after the course gets over. Then only students will be able to repay the loan and build their credit history over time. If the university or institution offers placement to its students based on their marks and eligibility then the lender is also confident of extending education loans. Else your loan application might get rejected. So, as a student, you should do the following before taking admission –
- Search and find the best institute or university that meets all your requirements
- Historical data of the educational institute with regards to the placement
- Schedule of charges as per the course
Collateral/Security Asked When You Apply for a Loan Amount Above a Certain Limit
Most lenders ask for collateral or security if you apply for loans more than INR 7.5 Lakh. Collaterals or securities could be any of the following –
- Property or land that is not covered under agricultural area
- Fixed Deposit
- Insurance policy
- Bonds and other securities
However, you can get a collateral-free loan upto INR 40 lakh from Axis Bank in some cases.
Margin Required in Education Loans
Loans upto INR 4 lakh are available to students without any margin money. But above the said amount can come with margins, so you will have to pay something from your pocket.
| Bank | Loan (INR) | Margin |
|---|---|---|
| Axis Bank | > 4 lakh | 5%-15% |
| HDFC Bank | > 4 lakh | 5%-15% |
| Bank of Baroda | > 4 lakh | 5% |
| ICICI Bank | > 20 lakh | 5%-15% |
| Union Bank of India | > 4 lakh > 10 lakh | 5% 15% |
| Punjab National Bank (PNB) | > 4 lakh | 5%-20% |
Role of 3rd Party Guarantees
To prove the security and reliability of education loans, you need to have a guarantor. And the guarantor must not be your blood relative. Because you must have a reliable as well as credible guarantor for your education loan. Why is that necessary? But guarantors must have a good credit score. This will only help lenders feel confident in lending you the requisite sum.
Features you will get with a guarantor on your education loan.
- Attractive interest rate
- Higher loan amount
- Quick approval for a high loan amount