You are looking for going abroad for higher studies or in India and don’t have enough money. What do you do? Like 90% of students in India, you apply for a student loan (education loan) from a bank. Banks evaluate your financial situation and give you an education loan. Easy peasy, right? Not really.
Student or education loans are one of the most sought after from banks in India today. Sure, there are many banks that provide education loans today but an average student is confused about which bank to go with. There are many things you have to understand, like interest rates, repayment period etc. How to dodge through all the high interest loans and get one that is beneficial for you? Read further.
Who qualifies for an education loan?
You would say every student, right? Wrong. Not every student will qualify for a student loan – unfortunately. Banks don’t want to give their money for free to every student. What they do is carefully go through every applicant’s profile and find out if the student will be able to repay the loan or not. Only the students that the banks think can pay back the amount will be approved. Banks have their own methods to find out who is an eligible student and who is not. Let’s look at what they are.
– Loan applicant should be resident in India.
– Student applicant must have secured admission to the college/institution where he/she is interested to join (India or abroad).
– Applicants must be able to give down payment according to bank’s request.
– Applicant must be able to provide collateral.
– Loan applicant must provide essential ID proof and other legal documents that shows his identity, educational qualification, local residence etc.
– Should be able to provide a guarantor (or parent).
What do banks look for in students applying for education loans?
Banks look for everything possible they can find about you. Your course of study, your previous marks and track record in college/school, your parents and their profession, your financial background, your assets (home, property etc). And then they put it all together to create a profile of you. Then someone from the bank’s risk assessment team will analyze your profile and say if you are trust worthy or not. What that means is, if the bank give the loan to you, can you be trusted to pay it back. That’s the only question banks are worried about.
How to get a student loans from Indian banks?
Easier said than done, right? Let’s take an example.
Imagine you’re a student who just completed standard twelve or school and now is pursuing career in Engineering or Medical and wants to go abroad for higher studies. What do you do?
The first thing to do is apply for admission at all the colleges abroad, which ever you think you can get through.
Second, get an idea about the course fees at those colleges.
Get their brochures, course duration information, placement services, job guarantee if any etc. Gather as many information as possible, so that you can make a presentable case to the bank, when applying.
Now, once you have created a good case for you, you have to secure couple more essentials – the financials. This is the most important part.
Banks ask for collaterals (basically a surety that if you don’t pay your loans, they can recover your property) and the better or safer your collaterals are, the higher your chances of getting a student loan.
Student Loan Application Process in India
Let’s look at a complete loan application process for an average student in India & figure out how to secure a student loans without any hassle from Indian banks.
1. Gather your course details
Like I mentioned above, gather up everything possible from the college/institution you are applying or interested for. Most institutions will have an in-house cell for students from abroad. Contact them and get all the details possible. See if you can get contact information of earlier students from your country. They will have several insights about how to go about. If this is isn’t officially possible, find people online who are studying in that institution and see if you can find anyone from your country. Contact them on social media and ask them for help. You’ll be surprised how willing people are to help others from the same country.
2. Check if any banks have tie up with your chosen institution
Next thing to check is how many banks have tie ups with your institution. Most prestigious colleges/universities have tie ups with certain banks for offering education loans. They might even have better interest rates. This is the low hanging fruit opportunity you must explore before even applying for loans to banks directly.
3. Gather up 10-15% of loan amount as down payment (money you can have to put in yourself)
One of the most important things to remember is that most banks would need you put in roughly 10% of the loan as down payment. Which means that not all banks will give you 100% loan. Let’s say your loan amount is 30 Lakh rupees. Then bank would need you to put in 3 Lakhs for them to fund the rest. You should have this amount handy already before even approaching the banks so you can negotiate for a better interest rate. If the bank sees that you don’t have any down payment possible, they will increase the interest rate quoted. With money in hand, you will have an upper hand over them and can negotiate a better interest rate.
4. Check if you can provide any collaterals (apartment, home, non agriculture land etc)
Collaterals are nothing but security for the bank. Let’s say in an unfortunate event, you are not able to repay the loans. What should the bank do? They will look for alternate ways to get the money from you. Your collaterals are your guarantee that even if you are not able to repay the loans, the banks won’t lose their money and can recover it back. Typically banks take houses (should be in your name), land, fixed deposit etc as collaterals.
5. Contact the bank and get the checklist of documents required
Every bank has their own list of documents required for student loans. They differ vastly from bank to bank. So, it is important for you to collect them even before applying. There could be certificates from school, other legal documents etc that will take time to procure if you don’t have them already. Make sure you have enough time to get them.
6. Contact at least 4 banks and get details on their education loan and interest rates
This is the fun part. All you got to do is visit as many banks as possible in your area and collect their education loan details. Most banks will have a separate loan officer dealing with students. Contact him/her and collect all the pamphlets, flyers and other instructional materials. Ask them what interest rates do they offer student loans at. If possible, create a document comparing all the student loans. This will be very useful for you when actually applying for student loans later.
7. Compare student loan interest rates between different banks
Now that you collected all the details, compare between them and see which ones offer the lowest interest rates and what are the maximum amounts they lend. This is also a good opportunity to study their terms and conditions etc.
8. Check what the repayment period is
A repayment period is defined as the time you need to repay the loan amount fully back. It could differ based on the loan amount you are taking. But some banks have a minimum and maximum repayment time. Make sure you understand it. Also keep in mind that the interest rates change significantly when the repayment period is changed.
9. Check when you have to start repaying your loan
This is a very important point that many students get a surprise for after they’ve done their study. Most banks say on paper that their repayment starts after one year of passing out. But typically, while negotiating interest rates, they slip in a 6 months repayment period and many people fall for it. In my opinion 6 months is a very short time to find a job unless you’re getting a campus placement. Make sure that you have enough time with you before the repayment time kicks in.
10. Check if the loan amount granted includes course fees only or also living expenses
When granting a loan, banks put in clauses that suggests what the loan amount covers. Make sure you have tuition fees and also living expenses covered. Or at least, clarify what the loan amount covers. If you are going to live in an expensive city in the USA or UK, you would need to figure out your living expenses. If they aren’t included in your loan amount, then you will need to find a part time job to make ends meet.
11. Check with more banks in another city/cities
Here’s a tip. Once you get all the details from banks, don’t just settle down with what you got. Loan amounts vary significantly at different states and cities, so make sure you also check with other banks or even same banks in different cities. Sometimes, you might get a lower interest rate and better deal.
12. Check if you can get a scholarship at your chosen institution
Finally, one thing that you should check with your institution/college is, whether or not they will give you scholarships for the course you are looking for. If they do, try your best to get it. If you can, they it will ease out your pain of getting another bank education loan as now, you need to only provide so much less money. However, this step is tricky as you have to prove to the college that you are worthy or scholarships. And colleges also have limited number of scholarships available per course per year, so luck too plays an important part here.
Banks offering education loans in India are many. But finding the right bank that fits your requirements is the key to finding the best deal. Because remember, you have to live with this loan for probably another 5-10 years of your life. So don’t look for quick gains. Instead, look for a good partner who you can trust and is transparent with. Not all the banks that give the lowest interest rates are good nor all the banks that give the quickest loans. Make your decision clever. Always ask an expert before making a decision.