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Education loans are offered by Indian lenders to students wishing to pursue graduation and post graduation courses, either in India or abroad. Interest rate charged should be the main factor to consider when you select your lender. Sometimes, there may be special concessions applicable to you. Public sector banks are generally found to be more competitive. Keep in mind that the course applied for, the institution and individual requirements determine the terms of the loan and can differ from one student to another.
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Indian banks offer education loans to deserving students for graduation and post graduation studies in India and abroad. In addition to banks, other specialised financial institutions also offer such loans. However, not all banks in the country have an education loan product, and sometimes offer personal loans as a proxy for education loans. But education loans have some distinguishing features like a moratorium period and better rates compared to personal loans. So it is always better to opt for an education loan product if you want to borrow for studying or financing your loved one’s education.
Education loans are generally given in the following categories for Indian and foreign education: Less than Rs. 4 lakhs, Between Rs. 4 lakhs and Rs. 7.5 lakhs and above Rs. 7.5 lakhs. Here are some pointers you should keep in mind while availing an education loan:
Interest and other charges: One of the most important things to consider, interest rates can be either fixed or floating in nature. Understand your risk appetite and the economic scenario to decide which you would prefer. A floating rate is determined based on a mark up to the bank’s base rate. This mark up can change depending on the general interest rate scenario in the country. Also, for education loans, interest will need to be paid immediately when the loan is disbursed. Although some banks give you the option of starting interest payment after moratorium period (a waiver period which is usually the course duration + 1 year or 6 months after the student gets a job, whichever is earlier), don’t opt for this, as it can only increase your repayment burden. Processing charges are generally nil for education loans, but some banks charge a fixed fee. Analyse all interest and fee related terms carefully, as this is the single biggest determinant for education loans.
Education loans are generally given in the following categories for Indian and foreign education: Less than Rs. 4 lakhs, Between Rs. 4 lakhs and Rs. 7.5 lakhs and above Rs. 7.5 lakhs. Here are some pointers you should keep in mind while availing an education loan:
Interest and other charges: One of the most important things to consider, interest rates can be either fixed or floating in nature. Understand your risk appetite and the economic scenario to decide which you would prefer. A floating rate is determined based on a mark up to the bank’s base rate. This mark up can change depending on the general interest rate scenario in the country. Also, for education loans, interest will need to be paid immediately when the loan is disbursed. Although some banks give you the option of starting interest payment after moratorium period (a waiver period which is usually the course duration + 1 year or 6 months after the student gets a job, whichever is earlier), don’t opt for this, as it can only increase your repayment burden. Processing charges are generally nil for education loans, but some banks charge a fixed fee. Analyse all interest and fee related terms carefully, as this is the single biggest determinant for education loans.
A floating rate is determined based on a mark up to the bank’s base rate. This mark up can change depending on the general interest rate scenario in the country. Also, for education loans, interest will need to be paid immediately when the loan is disbursed. Although some banks give you the option of starting interest payment after moratorium period (a waiver period which is usually the course duration + 1 year or 6 months after the student gets a job, whichever is earlier), don’t opt for this, as it can only increase your repayment burden. Processing charges are generally nil for education loans, but some banks charge a fixed fee. Analyse all interest and fee related terms carefully, as this is the single biggest determinant for education loans.
Interest concessions: Almost all banks give a 50bps concession in interest rates for girl students. In addition, some public sector banks like Bank of India, SBI and Punjab National Bank give 1% concession if interest is serviced promptly. Banks like Bank of India and Bank of Baroda give an additional 1% concession if admission is sought in specified courses or colleges in the country.
Quantum of Loan and Tenure: For Indian education, the upper limit for education loans is generally Rs. 10 lakhs, while it is Rs. 20 lakhs for a foreign education. SBI offers upto Rs. 30 lakhs for foreign studies, which can be highly beneficial if you are planning an education in an expensive institution abroad. The maximum loan tenure offered varies with each bank, with the repayment period extending to upto 15 years in some cases. However, since you get Income Tax benefits for interest payment only upto a maximum of 8 years, it does not make much sense to take more than this period to repay your loan.
Loan inclusions: All banks cover the standard inclusions in the loan amount. Refer the comparison table for these details. However, SBI has an upper limit on certain items. Although it may not be very detrimental, it can restrict your expenses – analyse your requirements carefully.
Margin monies and collateral: All banks have standard requirements for margin. There is no margin needed for loans upto Rs. 4 lakhs. Beyond this, an Indian education requires 5% margin while a foreign education requires 15% margin monies. Note than Credila, HDFC’s specialised NBFC for education loans grants loans without margin monies. Loans upto Rs. 4 lakhs generally do not require collateral and are granted on the back of a co-obligation by the parent or guardian. For higher amounts, a third party guarantor, tangible collateral security as specified by the respective bank and sometimes even an assignment of future income are required. This differs from bank to bank and also depends on the amount of loan you take.
Which is the best education loan?
We have analysed education loans offered by 4 private banks, 4 nationalized banks and 1 NBFC – Credila. Education loans are pretty standardized across banks, with interest rate being the main differential. However, other aspects can also vary depending on your need and background. As most of the products differ from one individual to another and also from one lender to another, it is best if the student can walk across to a branch and find out the details, as applicable to him/her.
On the basis of our analysis, here’s what we think. Public sector banks can be good bets for education loans due to competitive interest rates. Bank of India and Bank of Baroda can be considered, especially if you have got admission for courses/colleges which are eligible for interest concessions. Similarly, SBI is a good choice, especially for loans above Rs. 7.5 lakhs and for foreign education loans. Lower loan amounts from SBI do not make much sense, as interest rates are not highly competitive. PNB can be considered for loans upto Rs. 4 lakhs as interest rates are competitive in this segment. Credila is another attractive option you can select, as it specialises in education loan and can offer you benefits other than low interest rate. Besides, for foreign education, Credila provides sanction letter before the admission of the student.
Banks like Axis Bank and Federal Bank can be avoided, as the interest rates are high and there are no special features to distinguish the offering from other banks. HDFC Bank and ICICI Bank do not give information on their website regarding the rates they offer, and this is course specific. So you must find out the interest rate applicable to you by visiting their branches.
While we have attempted to give you a comprehensive analysis, we advise you to visit individual banks to get details applicable to your unique requirements. This analysis covers offerings from major lenders only and this is not an all-product comparison. If you prefer to download the excel file, please click here.
Quantum of Loan and Tenure: For Indian education, the upper limit for education loans is generally Rs. 10 lakhs, while it is Rs. 20 lakhs for a foreign education. SBI offers upto Rs. 30 lakhs for foreign studies, which can be highly beneficial if you are planning an education in an expensive institution abroad. The maximum loan tenure offered varies with each bank, with the repayment period extending to upto 15 years in some cases. However, since you get Income Tax benefits for interest payment only upto a maximum of 8 years, it does not make much sense to take more than this period to repay your loan.
Loan inclusions: All banks cover the standard inclusions in the loan amount. Refer the comparison table for these details. However, SBI has an upper limit on certain items. Although it may not be very detrimental, it can restrict your expenses – analyse your requirements carefully.
Margin monies and collateral: All banks have standard requirements for margin. There is no margin needed for loans upto Rs. 4 lakhs. Beyond this, an Indian education requires 5% margin while a foreign education requires 15% margin monies. Note than Credila, HDFC’s specialised NBFC for education loans grants loans without margin monies. Loans upto Rs. 4 lakhs generally do not require collateral and are granted on the back of a co-obligation by the parent or guardian. For higher amounts, a third party guarantor, tangible collateral security as specified by the respective bank and sometimes even an assignment of future income are required. This differs from bank to bank and also depends on the amount of loan you take.
Which is the best education loan?
We have analysed education loans offered by 4 private banks, 4 nationalized banks and 1 NBFC – Credila. Education loans are pretty standardized across banks, with interest rate being the main differential. However, other aspects can also vary depending on your need and background. As most of the products differ from one individual to another and also from one lender to another, it is best if the student can walk across to a branch and find out the details, as applicable to him/her.
On the basis of our analysis, here’s what we think. Public sector banks can be good bets for education loans due to competitive interest rates. Bank of India and Bank of Baroda can be considered, especially if you have got admission for courses/colleges which are eligible for interest concessions. Similarly, SBI is a good choice, especially for loans above Rs. 7.5 lakhs and for foreign education loans. Lower loan amounts from SBI do not make much sense, as interest rates are not highly competitive. PNB can be considered for loans upto Rs. 4 lakhs as interest rates are competitive in this segment. Credila is another attractive option you can select, as it specialises in education loan and can offer you benefits other than low interest rate. Besides, for foreign education, Credila provides sanction letter before the admission of the student.
Banks like Axis Bank and Federal Bank can be avoided, as the interest rates are high and there are no special features to distinguish the offering from other banks. HDFC Bank and ICICI Bank do not give information on their website regarding the rates they offer, and this is course specific. So you must find out the interest rate applicable to you by visiting their branches.
While we have attempted to give you a comprehensive analysis, we advise you to visit individual banks to get details applicable to your unique requirements. This analysis covers offerings from major lenders only and this is not an all-product comparison. If you prefer to download the excel file, please click here.
Smitha Hari
GettingYouRich.com
GettingYouRich.com
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