Education loans are a boon for youngsters in these days of costly higher education and inflation. The dreams of many promising youngsters have been realizing with the help of this wonderful financial tool. Most parents take education loans from the bank in which they have their accounts. It’s not a bad decision, but however, it is advised to take a good look at what available schemes around you, before making a final decision.
Education Loans are offered by both banks and NBFC for professional graduation as well as Post- Graduation courses, both within India and abroad.
Education loans versus personal loans:
Some banks are offering personal loans with a holiday period for education purpose and advts goes like as if it is an education loan. But it is always advised to go for specific education loan for education purpose, as interest rates for education loans will be lower than that of personal loans and also there will be flexibility in repayment. Parents are therefore advised to have a closer look at the product offering by banks for not getting duped by personal loans offered as education loans.
Interest Rates for Education Loans:
Interest rates are the most important factor to be compared and considered while taking an education loan. Usually banks charge interest rates which will be slightly lower than their base rates and have options for both fixed and floating rates. Fixed rates will be 0.5% to 1.5% higher than floating rates. Interest rates for education loans vary according to the course, amount taken as well as tenure. Interest rates for second loans or post graduate courses will be lesser that that of the graduation courses, as the risk involved in it will be lesser for the banks.
Most banks will ask to pay the interests only when the repayment starts, but this is not a good option for the borrower or the parent is in a position to pay off interests, as otherwise, the interest amount will be compounded over the holiday period. Compounded interest means a high EMI which will be a burden for youngsters during their initial years of career. Go through the bank’s terms carefully before taking an educational loan because there are options like daily reducing balances as well as quarterly reducing balances. For fixed rates, most banks will have some clauses.
Down payment: Most banks lend a maximum of 80% of the total course fee and payments like capitations / donations are not included in this. However some banks offer up to 95% for professional courses like MBBS and post graduate courses, as well for the courses offered by top level institutions. Banks fix this margin to ensure the level of commitment from the part of the borrower.
Collateral required or not: Education loans are collateral free loans, but if the amount is higher banks may ask for collaterals or a guarantor/ co-applicant. The co-applicant / guarantor should be parents of the student, and the collateral can be the parental property, fixed deposit of an equivalent amount in the bank or rarely insurance policies. The guarantor / co-applicant should be an employed person and will be responsible if the applicant fails to repay the loan after the holiday period.
Comparing Education Loans offered by the top banks in India
|Axis Bank||HDFC Bank||Bank of India||Bank of Baroda||State Bank of India|
|Interest rate per annum||Base rate(10.25%) + 7% for loans upto 4 lakhs, + 8% for 4-6 lakhs, + 6% for above 7 lakhs.||14.5%||
||Upto 6 lakhs- Base rate (14.5%) +2.5%,|
above 7.5 lakhs- base rate + 1.75%Upto 4 lakhs- Base rate (10%) +3.5%,
4 lakhs to 7.5 lakhs- Base rate + 3.75%. above 7.5 lakhs- base rate + 1.75%Interest concessions0.5% for women beneficiariesInformation not available1% if interest is serviced during the study period, 1% for women beneficiaries and 0.5% for professional courses1% if interest is serviced during the study period, 1% for women beneficiaries0.5% if interest is serviced during the study period, 1% for women beneficiariesLoan processing chargesNilUpto a maximum 2% of the loan amountNilNilNilMaximum Loan TenureInformation not available7 years including moratorium period7 years10 years after moratorium period5 – 7 yearsMoratorium/Waiver periodInformation not availableCoursework period + 1 year or 6 months after the student gets a job/starts earning – whichever is earlier.Course period + 1 year or 6 months after getting a job whichever is earlierCourse period+ 1 year or 6 months after getting job, whichever is earlierCourse period+ 1 year or 6 months after getting job, whichever is earlierMargin amount5%Information not available5%5%5%Collateral3rd party guarantee; LIC policiesNot needed for loans upto Rs. 7.5 lakh3rd party guarantee; Land/building/Govt. Securities/Public Sector Bonds/NSC/KVP/LIP/ Banks Term Deposit3rd party guarantee along with assignment of future income3rd party guarantee; May be waived if bank is satisfied with the networth/means of the parent