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Loans F.A.Q

When is the right time to apply for an education loan - before admission confirmation or after?

It is best to start processing your study loan even before you get an admit. Many colleges do not grant much time between the admissions and the fee payment, and this often leaves you with very little time for loan application and processing. Resulting in you having to run around for funds at the last minute.

Above all, early application:

  • Increases the chance of getting admission to your dream university since there is fund assurance
  • Allows you to know your loan eligibility in advance
  • Loan Sanction letter has better acceptance compared to a solvency letter
  • Helps avoid last minute surprises during Visa / fee payment times

Do I need to have an admit before applying for an education loan?

No. You can apply for a loan even before you get your admission confirmation from a University / College. There are lenders, who will provide you with a conditional loan sanction letter. This helps students and parents feel confident and stop worrying about funding their education.

What are the types of study loans available?

The financial terms can be a little confusing but their understanding is necessary for you to choose an education loan that best suits your financial requirements.

Education Loans can be classified into two main types:

  • Unsecured Loans – Loans without collateral
  • Secured Loans – Loans with collateral

Having said that, we also have new cross-border lenders, who can help you with a collateral and co-borrower free study loans depending upon your admit

What is a Secured Loan?

  • Requires the borrower to offer any collateral like immovable property, FD, Insurance Policy etc. against which the loan is offered.
  • Lower rate of interest.
  • The chances of approval is high.
  • Longer repayment period
  • No repayment during study period.
  • Parental income is not required for the approval.
  • Public sector banks require a collateral

What is an Unsecured Loan?

  • The borrower does not need to offer any collateral to get this loan.
  • Higher interest rate, usually 1.5% – 4% higher than the secured loan.
  • Is a more risky proposition for the bank, hence is not so easy to obtain an unsecured loan from the bank.
  • Comparatively shorter repayment period.
  • Some repayment during study period.
  • Parental income is required for the approval.

Who are NBFC's?

NBFC means Non-banking Financial Companies. NBFC and bank both are financial companies. But the major difference is unlike banks, NBFC cannot issue self drawn cheques and demand draft. As the name suggests NBFC is not a bank, they perform only lending functions to public and cannot accept deposits from them.

What is a collateral?

Collateral security is the personal asset that students submit with banks and financial institutions to get the education loan for study abroad. Different factors like collateral valuation, collateral eligibility influence the rate of interest and quantum of study abroad loan one can take. It can be a tangible asset like a house or an intangible asset like a Fixed Deposit.

What types of collateral are accepted?

Different banks and NBFCs accept different kinds of collaterals. Some common assets that can be pledged against your education loan are:

  • Tangible Assets – House, Apartment, Bungalow, Shop, Non-agricultural Land, Vehicle etc.
  • Intangible Assets – Fixed Deposit, Life Insurance, Stocks etc.

Is it necessary to have an account with the bank to avail an educational loan?

Earlier, having an account in the bank from where the borrower was hoping to get a loan used to be an important criterion. Now it is no longer a mandatory requirement. If you have an account with the particular bank, it usually becomes easier to get the loan sanctioned.

This is because of your prior relationship with the bank, your past financial records and transactions can be analysed faster to make a decision.

Can I avail another loan for further studies?

Yes, this is possible. You can borrow a loan for a bachelor’s degree followed by one for master’s without repaying the first loan. This loan can be taken as a top-up loan against the already existing loan; however, it is subject to the lender’s discretion and the internal rules and regulations of the lender.

The repayment will commence as per the new moratorium period, which will take effect once the student has joined a new course.

What is a Moratorium Period/Holiday Period and how is it important?

It is a period specified by the lender, where the borrower is exempt from making repayments during the loan tenure. Loans with moratorium period have a big plus, so, it will lessen your financial burden while you study. This period may range from six months to one year after completion of the course.

Why do banks require an insurance policy?

Banks usually prefer that students avail a life insurance policy equivalent to, or more than, the loan amount. The policy acts as a security feature and forms a part of the collateral. In case of the untimely demise of the borrower, the bank recovers the outstanding loan amount from the student’s life insurance policy and the remaining amount, if any, is paid out to the beneficiary of the policy.

Is credit score important in case of education loan?

A majority of students applying for an education loan do not have previous credit history such as other loans or credit cards. Thus, education loan specialized lenders have a specialized credit scoring model that scores education loan application based on the University, College and the Course of admission.

They factor the academic background of the student as well as the credit history of the co-borrower into their decision.

Do education loans have any Income Tax benefits?

Loan borrowers can avail tax benefits on interest paid on education loan under Sec 80E of the Income Tax Act. This benefit is available over and above the Rs. 150,000 deduction allowed under Section 80C. Tax benefits can be availed once the borrower starts paying the interest on the education loan.

Further, the deduction is available until the borrower pays off the full interest amount on the loan or for a maximum period of 8 years, whichever is earlier.

What is a Margin Money and how does it impact the volume of funding I am offered?

This is the amount of money that you need to pay from your own pocket while the rest will be paid by the lender. Depending upon the margin money % offered by the lender, you can understand the coverage you will get for all your education expenses.

What advantages do I have to go for NBFC?

  • The biggest advantage of borrowing from an NBFC is that they cover a wider range of institutions and courses from across the globe, as against banks, who restrict their loan offerings based on the course, destination etc.
  • With fewer regulations in place than a bank, NBFC’s lending process is far more relaxed and are often much faster in sanctioning & disbursing loans.
  • They are also more likely to offer a range of customized services that may be specifically suited to certain students. Lesser amount of paperwork is required to obtain a loan.
  • NBFCs usually don’t cap the amount of loan that they can offer a student. Based on the course requirements & collateral value provided they can offer loans to the tune that the student is requesting. Banks on the other hand have an upper limit on the amount they can offer a student.

Is the interest rates in NBFC high?

Naturally, since NBFCs borrow money to lend, their interest rates are likely to be much higher than that of banks
They are likely to impose a penalty for pre-closure of the loans. And, no interest subsidy, which the Government of India offers, will be passed on to borrowers from a typical NBFC.

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