Educational Loan Do’s and Don’ts


Education is given a lot of importance in India. Every year hundreds of thousands of students compete for the seats in the top colleges across the country as well as overseas.

There are many meritorious students that are able to secure seats in some of the best institutes but are unable to arrange the funds for the college fee, etc. This is where education loans can be of great help.

If you are about to apply for a student loan, then make sure you know about the Do’s and Don’ts of the same:

Do Start Looking Without Delay

As soon as you have secured a seat in the college of your choice, start comparing your loan options.

Thanks to the Internet, a large part of your research can be conducted from the comfort of your own home itself. However, you may want to visit some financial institutions in person that offer better options for more info.

Don’t Apply with a Bad Score

A lot of times the student has no credit history, which is why the bank asks their parents to become their loan guarantor or co-borrower. If the loan amount is high, then again, the bank may place the same request before them.

Either way, banks always check the credit score of the student as well as their parents. However, to apply for a loan with a bad CIBIL score can be quite a bad idea. This is because:

  • You won’t be able to get a good interest rate.
  • Your score could drop even further due to loan rejections and multiple hard inquiries, which take place when a bank or another financial institution requests a credit agency for your credit report.
  • Do Learn About the Eligibility Criteria

    Although the actual eligibility criteria for getting a student loan may vary from one bank to another, the differences are usually minor ones.

    In most cases, you would need to fulfill the following conditions:

    • You must be a citizen of India
    • You must have secured a seat in the college you are going to study in and applying the loan for
    • The course is a long-term course and is one of the select courses that qualify (usually engineering, medical, business, etc.)

    Don’t Settle for the Interest Rate You are Getting

    Unless you have no other option but to get a loan with a bad CIBIL score, you will have plenty of options to choose from. However, apart from various other factors, the interest rate should greatly affect your decision.

    Most student loans come at an interest rate of 9.5% and can go as high as 15% or 17%. If you have a good credit score, then you can negotiate with the lender to offer a better rate. Otherwise, if you are lucky, you can avail a good rate around the festive seasons when several banks offer attractive schemes for loans, etc.

    Do Enquire About Additional Charges

    In a rush to arrange for the funds for the college fees or simply because of impulsiveness, a large number of students forget to inquire about many important things regarding education loans.

    For instance, many banks impose a variety of charges such as processing fees, service charges, etc. In addition to these, there is the concept of prepayment charges, which is the fine you have to pay if you decide to repay the full debt before the actual completion of the term.

    It’s really important to ask your bank about these things, especially the prepayment charges. Naturally, it’s best if you can find a loan in which you don’t have to pay the same.

     Apart from these do’s and don’ts there are many other aspects to learn about student loans.

    For instance, most banks can finance as much as 100% of the student loan depending on the amount. However, for bigger loans, which are usually above Rs. 7.5 lakhs, they ask for collateral.

    The loan term is also usually between 4 to 7 years. However, you may get your lender to extend it if you have valid reasons.

    By educating yourself and doing your homework in advance, not you can greatly improve your chances of getting a loan approved, you can do it at a good interest rate as well.