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How to get a bank loan for education

By Chetanbrajpurohit
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Dreaming about the prestigious college will not get you an admission to the same. Securing a bank loan is a vital step in fulfilling you career aspirations. Remember, the process does not end at merely securing an education loan, infact that is only half way through the process. Let me guide you through a step by step guide to understanding and achieving success in securing an education loan. Wish you all the best.

Things You'll Need

  1. A savings bank account in the branch of the bank (maintained over a period of time) from where you wish to apply for the loan.
  2. Admission letter from the College/University.
  3. Break up of fees statement/tutition fees from the college, this should also include your accomodation/hostel charges.
  4. Test scores/relevant marksheets/transcripts.
  5. Collateral security, in case of weak credit.
  6. Proof of residence/age proof/address proof.

Steps

1

After you have shortlisted the college and secured admission into the same, make sure if the college falls under the purview of AICTE, which stands for the All India Council of Technical Education. In short the institute should be recognized by the bank for the purpose of extending a loan. Many a times banks also have tie-ups with certain institutes, enquire for the same with you college or bank to speed up the process of loan application.

2

Acquire the loan application form. The form must be secured from the bank in which you hold a savings account. This is advisable as banks are releuctant to offer a loan to customers who do not have an account in their branch and whose credit history is not known. Nationalized banks are generally advisable as their interest rates may be more competitive.

3

Fill the form completely mentioning and declaring each detail and submitting all requisite documents and identity/adress proofs as demanded by the bank manager.

Tips

  1. Decide on the amount of loan you need to fund your education. Exercize your discretion to the split between your own contribution and the proportion of loan amount. My advice: try to maximize own contribution to avoid the interest burden.
  2. Ask details about when will the repayment begin, details about the amortization schedule and if the same can be provided or not. An amortization schedule is a detailed chart showing the entire period of loan, and how it is going to be amortized over the term period.
  3. A word of advice here: Most nationalized banks in India offer education loan on floating rate of interest. The trouble with floating rate of interest is that it keeps varying with the Reserve Bank's prime lending rate (PLR). This makes the preparation of an amortization schedule difficult, as the interest component keeps fluctuating.
  4. In my opinion fixed rate of interest is more advisable to maintain transparency and be up to date in your personal calculations. However, if one wishes to pre-pay the loan before the stipulated period, floating rate of interest can also be looked into. Also enquire about pre-payment charges and what is the minimum lock-in period before pre-payment.
  5. Education loans are offered by banks with the option of interest serviced during the course of education or clubbing with the principal and being serviced later by way of EMI's. The latter is executed generally after the course is completed and placement is secured. However, if the student is employed while studying and wishes to start payment, he can start paying the EMI's.
  6. Take adequate insurance cover against your loan. Make contingency planning an important part of your financial planning. This includes keeping finances at hand and ready for meeting interest obligations, in case of delayed placement from college cell or any other adverse eventuality. It is also important to discuss your loan contratcual agreements with your family members and seek their guidance as well as make them aware of your obligations and other loan relevant details.

Caution

Speak to the bank manager about the interest rate. Undertsand the composition of interest rates, whether they are fixed or floating. Most importantly ask him about the EMI and its break up into principal and interest components during repayments.

Before applying read the loan document carefully. Undertstand the loan covenants/terms. Compare the lending rates of different banks, private/ public and time taken to process as well as processing fees. Understand if your credit is strong/weak, ascertain the need/reason for any collateral.

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