How to take an Education Loan from a bank

Education Loans are given by banks and other specialised financial institutions to deserving students for completing their graduation and post- graduation studies. Loans are given for studies in India as well as abroad. In India, not all banks offer education loans. Some banks offer personal loans for education purposes. If you wish to take a loan to fund your child’s education, it is better to go for an education loan to get the benefit of certain special features pertinent to education loans, which do not apply to personal loans.
Education loans are offered by banks generally in the following slabs: Less than Rs. 4 lakhs, Between Rs. 4 lakhs and Rs. 7.5 lakhs and above Rs. 7.5 lakhs. Some important factors to be considered while choosing an education loan are as under:

• Interest rates : This is the most important parameter to be considered. Interest rates are generally charged as a percentage over the base rate of the bank. It also differs according to the amount of loan needed. Understand if the interest rate is fixed or floating. Interest is generally required to be paid immediately on the disbursal of the loan. But some banks let you pay the interest only when you start repaying the principal. This may not be too beneficial, as your loan would have accumulated interest from the date of disbursal and will result in an increase in the repayment burden. Hence enquire these terms and analyse them carefully. Also understand if the interest is charged on a daily reducing balance or on a quarterly reducing balance.
• Other charges : In addition to interest rates, other charges like processing fees, documentation costs and administration costs also need to be considered, as these can result in a significant outflow from your end.
• Waiver period : This is the time period for which banks wait till you can start repaying the loan. Most banks wait for the student to get a job, or till he completes his course (whichever is earlier) to start repayment of the loan.
• Margin amount : As in the case of most loans, banks require the borrower to fund anywhere between 5% and 20% of the amount required, which is considered to be the margin. Banks thus lend only 80% to 95% of the total amount required.
• Collateral : Usually, for loans above Rs. 4 lakhs, banks require you to provide a collateral security, or have a co-applicant for the loan, who will act as a guarantor. Collateral can either be fixed deposits, mutual fund units, cash, insurance policies or real estate. Banks also specify requirements to be satisfied by persons acting as co-applicants for the loan.

Let’s visit the various banks’ site and check it which offer education loans in the slab between Rs. 4 lakhs and Rs. 7.5 lakhs for studies in India.