With education becoming more expensive and academic institutions charging huge fees, more students are inclined toward taking a loan to fund their studies. Lenders are witnessing a rise in the number of personal loans for students. However, it is easier for students to take an education loan as it has many more benefits. Here is an outline describing how students can avail an education loan.
Eligibility
The standard eligibility criteria for getting an education loan are listed below. However, there might be some additional requirements depending on your lender.
- The applicant should be a citizen of India and with a minimum age of 18 years on the date of application
- The applicant’s previous academic scores should be 60% and above
- Most importantly, the applicant should possess a confirmed letter of admission from a recognized college/university and into a course that is approved by the UGC / AICTE or any Government authority.
Co-applicants
You must ensure that you have a co-applicant to sign on your loan application. Co-applicants can include parents, siblings, relatives, or legal guardians.
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Authorized Loan Amount
The amount of loan you are eligible for depends largely on the cost of your course and your family’s combined income.
Interest Rates for Student Loans
In India, the interest rates associated with student loans range from 12% to 16%. However, different lending institutions offer personal loans for education, and the interest amount can vary. Certain factors contribute toward defining an interest rate for a student loan, such as:
- Applicant’s financial background
- Academic background
- Loan amount and tenure
- Pedigree or the college or university
Margin Percentage
Loans amounting up to Rs 4 Lakh do not require additional margin. However, applying for a loan over Rs 4 lakh requires you to provide an additional margin of 5% for courses in India and 15% if you are studying abroad.
Collateral
The lender may require collateral or a guarantee depending on your loan amount. If your loan amount is less than Rs 4 Lakh, you would be eligible to take an education loan without collateral. If your loan amount ranges between Rs. 4 Lakh to Rs. 7.5 Lakh, you may be required to submit a guarantee without the need for collateral. However, for loan amounts exceeding rs. 7.5 Lakh, it is compulsory to provide security or collateral.
Tax Benefit
A student loan entitles you to tax benefits per section 80E of the income tax act.
Loan Repayment
You must repay your loan amount six months or one year after the completion of your course. This can be extended up to 5 to 7 years.
Pre-Payment of Student Loan
Students willing to pre-pay their education loanmay not be required to pay additional charges. However, this depends on the lending institution.
Non-Payment of Student Loan
Non-repayment of the loan could drastically affect your credit score and your co-applicant’s credit history.
A Guide Into the Student Loan Process
Here is a step-by-step guide explaining the student loan process. The actual process may differ for each lending institution. The fundamental steps are outlined below
Step 1: Identifying a lending institution:
Numerous banks may offer student loans. However, one must meticulously check the terms and conditions before applying.
Rate of interest, repayment option of monthly or annual installments, late payment charges, penalties in case of non-repayment, and any other conditions that the bank stipulates.
It is important to note that while many institutions offer a student loan, the terms and conditions differ from one entity to the other.
Step 2: Documentation
The applicant should ensure that they possess all the documentation mandated by the lending institution. Some of the standard requirements are:
- Identification document issued by the government
- Proof of address as mandated by the lending institution
- Collateral document and/or verified income statement of guardian
- Confirmed letter of admission from a recognized university/college
- Scorecard and bonafide certificates issued by the previous institutions
In addition to the above, an applicant, when applying for a student loan for studying outside India, would need to produce the following documents:
- A schedule of future expenses concerning the selected course
- Valid travel documents and visa issued by the inviting country
- Bank statements for the last six months or as mandated by the lending institutions
The lending institutions can also ask for additional documents as per their policies/requirements.
Step 3: Application form
The lending institution provides the loan application form, and the applicant must fill out the details and annex the necessary documents. The loan application form also mandates a passport-sized picture of the applicant.
Step 4: Disbursement of loan
The lending institution disburses the education loan once the applicant can meet all the requirements and the documents are verified.
Step 5: Repayment of loan
The process of repaying the student loan begins once the applicant has completed the course; however, the repayment terms are at the discretion of the lending institution, and one has to adhere to the accepted terms and conditions.
Fundamental Steps to follow while applying for an education loan in India
Here are the key things to remember while applying for a loan
- Choosing the right university/course
Make sure you choose the right university with good placements such that it does not become challenging to find a job once your course gets completed. The course you enroll for must have a high return on investment to help you pay your debts.
- The credit score of your co-applicant
Ensure your co-applicant has a good credit score to increase the chances of your loan application being approved.
- Loan amount
Spend some time planning out the exact loan amount you wish to take. Systematically plan your overhead expenses and map these against your annual budgets to ensure your repayments can happen smoothly.
Summary
A student loan is an effective way to pursue educational aspirations, and multiple institutions lend the required monetary support. However, the applicant must review the lending terms thoroughly before making the final application.
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