Are you an Indian student planning to study abroad but can’t afford it? Choosing the correct education loan and the right loan provider can be confusing with so many options available in the market, right? But don’t let that put you off! Here are 5 steps to choose the right education loan in India.
Banks in India sanction education loans depending on many factors:
1. The course’s content
2. Course recognition by India’s University Grants Commission (UGC)
3. Your co-borrower or guarantor’s source of income
4. The value of your tangible collateral security
To choose the correct education loan in India, you should follow these steps:
An education loan could cover only a few expenses or cover everything from tuition fees to travel costs, examination fees, student accommodation costs, and living expenses. So it’s beneficial to calculate all the expenses you will have to determine the loan amount you need. It’s important to take into consideration the interest rate, the processing fees, the type of loan, and the repayment conditions.
Indian state banks offer education loans ranging from Rs. 2 lakh up to Rs. 40 lakh; however, private banks offer loans that start from Rs. 50.000 up to Rs. 1.5 crore. Non-Bank Financial Companies (NBFCs) offer education loans with no maximum amount. Its minimum loan amount is Rs. 50.000 for education in India and Rs. 1 lakh for international education.
Normally, banks don’t request a co-borrower/guarantor or tangible collateral security for education loans of Rs. 4 lakh or less. If your educational loan is between Rs. 4 lakh and Rs. 7.5 lakh, banks request a third-party guarantor. Nevertheless, banks will usually ask you to submit collateral security if your loan is more than Rs. 7.5 lakh.
When you apply for a loan, choose the correct type. There are two types of loan:
1. Secured Loan
If you apply for a secured loan, banks or financial providers will ask you to submit tangible collateral (an asset like a house) to act as their security if you don’t repay the loan.
2. Unsecured Loan
On the other hand, unsecured loans don’t require collateral security. This type of loan is a huge risk to banks and financial providers. That’s why their interest rates, processing fees and other charges are higher.
One of the most important factors in choosing your education loan in India is the interest rate. Interest on education loans depends on the loan amount and the institution you are going to study at. State banks offer low-interest rates of up to 2%; however, private banks’ interest rates range between 9.25% and 17.50%. Always make sure you are aware of the interest rate that will be applied to your loan. You can always ask the bank employee to explain the interest rate and its calculations to you while applying for your student loan.
Ask your education loan provider about the repayment terms, especially the following two terms:
This is the period you can spend without paying your loan after completing your studies. It ranges from six months to a year. Once this period is over, you will need to start repaying your loan even if you don’t have a job yet. Private or NBFCs may ask you to pay simple or partial interest rates while you are studying, so ask about that as well.
Loan tenure is the timeframe you are expected to repay your loan within. It lasts up to 15 years in state banks, 20 years in private banks and 10 years in NBFCs.
Similar to the interest rate, loan tenure can save you money. The longer the tenure is, the higher the interest will be. Adding one year to the repayment period increases the interest amount.
To process your education loan, banks request processing fees ranging from 0% to 5%. State banks add Rs. 11.800 in processing fees to secured loans, and they don’t provide unsecured loans for loans of more than Rs. 7.5 lakh. There are no fees in private banks if the loan is less than Rs. 20 lakh. However, they apply Rs. 750 on each lakh if the loan is more than Rs. 20 lakh. Also, NBFCs charge processing fees of up to 2% of the total loan amount. Processing fees are important to understand, so keep them in mind before initiating the loan procedures.
To gain more information before applying for an education loan, read our previous articles on the best education loan providers and how to apply for a student loan in India. Whether you are planning to study abroad or in India, Casita will help you find your perfect student accommodation, taking into consideration your needs and budget! You can even apply for a student loan through Casita now.