Must knows before applying for an education loan

Studying abroad is a dream for many students in India, and it’s the exposure, varied opportunities and an interaction with the global community that attracts most students. A common challenge to those dreams is mostly lack of finance. However, thanks to various education loan opportunities available, students all across the country are being able to realise this dream, with banks and other financial institutions offering loans to students for undergraduate, graduate and professional courses.

However, there are certain criteria that one has to fulfil in order to be eligible for such loans. Given below are a few must-knows before applying for an education loan:


The process

It is important to keep a track of the rate of interest charged by commercial banks on education loan. Current interest rates on education loan in India are 11-12% onwards. However, the rate differs from bank to bank, depending on the tenure taken and the amount of loan. Certain banks also offer benefits like lower interest rates for girls; for example loan offered to girls will carry lower interest rates by up to 50 bps (0.5 per cent).

For a student to avail an education loan, a co-borrower or a guarantor like a parent or guardian is usually essential. However, if the loan amount exceeds a certain amount, you might need to arrange for suitable collateral, which could be an immovable property, fixed deposit or an LIC policy, among other options.

The guarantor on the education loan is liable for its repayment if one fails to pay the EMIs. The guarantor's CIBIL Report will show the details of this education loan and defaults will also show if the loan is not repaid, which can lead to the guarantor's credit history and score to be negatively impacted by any delayed payments. Therefore, you may end up putting your guarantor’s CIBIL Report and score at risk if payments are not done on time.


Preparation required

To get a loan, one would need to fill an education loan application form, and submit mark sheets of last qualifying examination, proof of admission at the institute you have applied to, the entire cost and expenses for the specified course, the PAN card of the student or of the parent/ guardian, and co-borrower's bank account statement for the last six months. Other than this, the bank will also seek IT returns for the previous two years and proof of income of the guarantor. It is also extremely crucial to keep a track of your and your guarantor’s CIBIL TransUnion score and CIBIL report before applying for the loan. The banks will be checking the loan guarantor’s CIBIL Report and Score prior to approving the loan.

Repayment

Repayment of the education loan on time should be of top priority. For education loans, banks allow a holiday period during which one does not have to start repaying the loan. This period is called as the ‘moratorium’ period in banking terms and is usually taken as the course period plus one year or six months after getting a job, whichever is earlier. It is after this period that the EMIs of education loan begin.

Your CIBIL report not only reflects all your loans but also reflects the transactions related to payment of your education loan. This impacts the CIBIL TransUnion score and therefore any non-repayment of EMIs will lead to a low score which can cause a hindrance whenever you want to avail any loan in the future.

To ensure timely payments of EMIs, many students take up jobs while studying to manage their living expenses and pay their dues on time. They also take such a step to ease their parents’ financial burden and start financing themselves on their own. In a worst case scenario, if you are unable to repay your education loan, you can ask the bank to lower your burden by reworking your repayment terms and suggesting a lower EMI.

The entire motive of an education loan is to reduce the financial burden of a student so their futures are not compromised due to paucity of finance. Hence, paying it off should be the first step a student must opt for in order to not let their future plans suffer.

Your credit history and score impacts your access to finance at every stage and milestone of life. Certain companies may ask you to submit your CIBIL Report and score before recruitment. Hence, maintaining a healthy credit record is warranted for building a safe financial future. "

About the author: Harshala Chandorkar is the Chief Operating Officer of CIBIL

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