Negotiate For Cost-Effective Education loans

All students do not end up getting 99 per cent marks and admission into government colleges. As the consequence, one has to pay for child’s higher education in private colleges. With sky rocketing cost of education, it becomes important for us to plan our finances accordingly and take help of education loans.

Terms and conditions dealing with education loan are flexible and differ from one case to another. When the bank feels that the risk involved in lending money is less, banks will try to give you as much flexibility as possible in terms of interest rate, tenure and other charges. Here, to negotiate for cost-effective education loan, it is important for you to understand what banks consider as risk and how it can be mitigated. Let’s find out…

Repayment Capability Determines Loan Amount & Margins

In most of the banks, for studying in India, a maximum loan amount of Rs 10 lakh and for studying abroad, a maximum of Rs 20 lakh can be applied for. The complete cost of education is not granted through banks. The banks generally ask you to give a margin amount, which needs to be paid by you. Margin amount is a percentage of the total cost of education, which is lower for lower amounts. If the amount of loan is less than Rs 4 lakh, you will not be asked to contribute any margin. However, if the amount of loan is more than Rs 4 lakh for studying in India, you will have to contribute 5 per cent in the form of margin amount. In similar cases for studying abroad, you would have to contribute 15 per cent of the amount. There are various factors on which the loan amount is determined. Among them, the income of parents plays an important role. In case parents’ income is high and stable, banks would be satisfied even on low margin. In addition to this, you can also negotiate for lower margin, if you are earning a handsome amount.

Repayment Period Is Negotiable

In education loans, repayment does not start immediately. The repayment generally starts after 6 months of getting a job or 1 year after completing your course (in case you do not have job). Here, one can negotiate for longer repayment period on the basis of stable income and premier institute of study.

Negotiate For Interest Rate And Charges

Interest rates on education loans vary from 8 per cent to 14 per cent and processing fees from 0.5 per cent to 2.5 per cent. Interest rates can be negotiated on the basis of loan amount, institute of study, type of course, educational background, educational performance in past, career history, in case you are working, etc. Some banks provide loans at discounted interest rates for IITs, IIMs and other premier institutes of study. In addition, if you are financing our education yourself by working, you can negotiate for lower interest rates. Also, if you are ready to pay the interest amount during moratorium period, i.e. the period in which you are studying, certain banks give you a discount of about 1 per cent on interest rates. You can also look for those banks that do not charge processing charges on education loans for studying in India. However, as far as studying abroad is concerned, processing fee of 2 per cent of the loan amount or usually a fixed amount of Rs 5,000 can be levied. Here, you can negotiate with banks for reducing the processing fees amount on the basis of your repayment capability and institute of study. The processing fees can also be waived-off completely, if you have applied for a premier institute.

Comparison Of Education Loans Of Different Banks (Loan Amount: Rs 6 Lakh, Tenure: 7 Years):

Use Guarantor For Negotiation

A guarantor or co-applicant is necessary to get you loan, in case you are not meeting the set standards of bank’s credit criteria. Your guarantor is an asset with the bank, from which it can recover its money, in case you default in your EMIs. Usually, relatives can become guarantors or co-applicants. The net worth of the guarantor/co-applicant should be more than that of loan amount. In case, the net worth of guarantor is very high, banks may consider lowering the interest rate or margins. You must highlight the net worth, credit worthiness and the liabilities of your guarantor, if they are working in your favor. Financial strength of the guarantor also has a positive impact on the amount of security you are required to offer. In case the guarantor is of high net-worth, your loan application may be considered without offering any security.

Offer Lesser Security With High Net Worth Guarantor

Loans below Rs 4 lakh do not require any security; however, for higher amounts, you would require to submit security for full value of loan amount in form of property, automobiles, cash accounts, investments, insurance policies, fixed deposits or any other applicable physical or financial security. The type of security acceptable varies from one bank to another. However, the terms and conditions can be negotiated on face-to-face basis. If the banker has faith in your repayment capability, the required collateral may be waived-off. In case, you have a long standing relationship with certain bank and the bank is well aware of your net worth and repayment track record, it is advisable to apply for loan in that bank only as it increases your chances of negotiation.

Educational And Career Backgrounds Play Significant Role

Most of us are not aware of the fact that negotiation for education loans also depends upon educational background and performance. If your basic education is from a good institute and is aligned to your higher education, it gives you an edge for negotiation. In addition, you can also highlight your bright record and qualities of being an all-rounder, if there. For this, you have to attach all your certificates of achievements along with the loan application. Even if, there is no space, you should make it a point to attach a separate sheet and mention all your achievements.

Documents Required

• Proof of age:

• Proof of identity (Applicant and Co-applicant) : One of the following documents has to be deposited:

• Proof of address (Applicant and co-applicant):

• Proof of income (in case you are self-employed):

• Security/ Guarantor’s documents (for loans of more than Rs 4 lakh):

•  Documents for main applicant: