Worry no more. To solve the problems of funding your education a number of Indian banks have come up with innovative loan products that help you in pursuing your dream academic course.
However, as a student you may be confused as to how you go about applying for a student loan, what are the points that you must remember while applying for a student loan.
To begin with, interest rate is one of the most important deciding factors when students approach a bank for an education loan. The interest rate also determines the overall cost of your loan.
Here are a few points that students should remember while approaching a bank for a student loan:
1. Interest rates vary significantly from bank to bank, and will also depend on the amount of the loan.
2. Most PSU banks have an option to allow you to defer the payment of interest and principal till the completion of the course so that you can start repaying both the interest and principal from your earnings.
However, you always have an option of paying the interest portion of the loan immediately from the month following the disbursal of the loan, and keep paying it during the tenure of the course. The interest is normally payable on a quarterly reducing basis.
3. Some banks charge interest on a daily or monthly reducing balance as well.
4. The interest rates can be fixed or variable. Under a fixed rate option, the rate of interest for the entire tenure of the loan will remain the same. Under the variable option, the rate is tied to the Prime Lending Rate (PLR) set by the concerned bank, and keeps changing half-yearly or yearly.
5. Usually, nationalised banks offer variable interest rates, while private and foreign banks offer fixed interest rates. Some banks, like SBI [Get Quote], also give you a choice between fixed and floating interest rates.
Processing fees
Processing fees vary from bank to bank. For example, PSU banks do not charge any processing fee, while some private banks charge 2.25 per cent of the loan amount as the processing fee.
Margin
The margin is the amount you need to pay from your own funds, while the rest is paid by the bank.
If you need, say, a loan of Rs 100,000 and the bank is ready to finance 80 per cent (Rs 80,000) of the loan amount then you will have to make arrangements for the remaining 20 per cent (Rs 20,000). In this case, Rs 20,000 is the margin amount.
Many banks have a margin for loans, which means that they will provide between 75 per cent and 90 per cent of the total cost of the course; you will have to pay the balance.
The scholarship amount, processing fee (if any) and insurance premium on the Life Insurance Policy (paid by the bank) can be included in the total loan amount for the purpose of calculating the margin.
The margin requirements on education loans are not very rigid. The industry norm is generally 5 per cent for studying in India and 15 per cent for studies abroad, for amounts exceeding Rs 4 lakhs. These, however, are indicative figures, and vary from bank to bank.
The margin money is calculated from time to time on the outstanding balance of the loan. You will be required to bring in this margin money on a year-to-year basis, as and when the disbursements are made on a pro-rata basis.
