- 1. What do the financial institutions mean by FOIR? How relevant is the same for the loan?
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FOIR stands for fixed obligation to income ratio. Its basically the maximum amount assumed which can be paid as Equated monthly installment out of the total earning of the student and co signor. In most cases the future income of the student is taken along with the parent income to decide the amount of loan to be provided. Hence compared to other loans education loans uses a futuristic FOIR requirement to ascertain maximum EMI possible and hence total loan amount. For State Bank of India the FOIR ratio is at 60% and Bank Of Baroda is at 65%. The same is generally not relevant for NBFC like HDFC Credila, Avanse, Incred & Auxilo as well as international funds like Mpower & Prodigy.
- 2. What is the concept in margin money that is used by the financial institutions?
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Margin money generally refers to the amount of self funding required by the education loan provider. In case the margin money is 90% that means that the bank would only fund up to 90% of the total cost of education. Every disbursal you would be required to provide 10% from your own funds. Here Bank of Baroda provides 100% loan on a select group of institutions otherwise it 90%. SBI provides upto 90% of total loan value. NBFC all provide fixed amount under unsecured or 100% of loan amount against property. US Banks provide 100% loan upto I20 value hence there in no margin money requirement.
- 3. What is the maximum loan provided by the financial institutions?
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The total loan provided by the financial institution is generally the lower value of the among the total cost of education ( Including Margin money concept) Vs Loan to Value of the property Vs FOIR calculation of co signor. SBI has the maximum amount at 2 cr. Bank of Baroda has maximum at 80 Lakhs. NBFC provide unsecured loans up to the total of 40 to 50 Lakhs and for secured there is no limit. International fund like Mpower provides maximum of USD 50,000 where as Prodigy provides upto 100% of loan requirement.
- 4. What do you mean by Interest Base rate for a bank? Where can you get information about the bank rate of the Institutions?
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Marginal Cost of Fund based Lending Rate is the internal benchmark rate used by banks to fix the interest rate on floating rate loans. Starting from 1st April 2016, all banks in India are required to benchmark and price their loans to MCLR. Education loans are based on this MCLR and generally the same fluctuate every month. All the details are available on the banks website.
- 5. What are the girl child benefits while availing education loan? Which financial institutions provide benefit to the girl child?
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Nationalized banks provide 0.50% rebate to girl child while taking an education loan. Private banks or NBFC do not provide the interest rebate for girl child. So in case for the same loan a male student might be paying 10.5% and female student 10 %.
- 6. What are the pro and cons of taking insurance with education loan? Is the insurance mandatory?
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Generally when the student is taking an unsecured loan from a private bank or an NBFC like HDFC credila, Avanse, Incred & Auxilo you are required to take a one-time insurance policy. The same is mandatory and is actually a life insurance. The benefit is that the parents would not have to repay the loan in case the child meets medical or accidental death.
- 7. What is the maximum Tenor of the education loan provided by the financial institutions? How is it calculated?
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The maximum tenor for the student is 15 years. The same is generally calculated from the time the student passes out of the course and gets a job. Some NBFC and international funds have maximum tenor of 10 years instead of 15 years.
- 8. What do you mean by Incidental fees? What are the additional charges while taking an education loan? Which are the financial institutions that charge very low or no incidental fees?
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Incidental fees are the additional amount apart from processing fees the student needs to spend to disburse the loan. In case the student is looking at a secured loan against property the student would have to pay for Property evaluation and legal verification. The same generally is around INR 5000 to 15000. It depends on the financial institutions. Apart from above there is cost involved with equitable mortgage as well as insurance cost which are part of the incidental costs.
- 9. What is the processing fee for education loan? How is the processing fees charged? Which financial institution has the cheapest processing fees?
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Processing fees is the upfront fees charged by the education loan provider to the applicant. There are the following types of processing fees.
- Refundable processing fees signify that the processing fees would be adjusted during the disbursal of the loan. It however, does not signify the return of the processing fees, in case the loan is rejected or the loan is not availed. This is provided by Bank of baroda.
- Non-refundable processing fees are the processing fees that are charged for the process and cannot be returned, irrespective of sanction, denial etc. This is provided by SBI, Axis and all NBFC.
- Amortized Processing Fees - Certain financial institutions, in which case, they do not charge any processing fees upfront, do an amortized processing fee. However, it is not that there are no processing fees. The processing fees are added as an additional percentage, over and above the interest rate offered per year, during the tenure of the loan. They generally have the concept of Annual percentage rate (APR). Annual performance rate (APR) is the addition of Interest rate plus the processing fees amortized. This is provided by international funds like Mpower and prodigy.
- No processing fee means that there is no charge for availing the loan. However, we would request you to read the fine print as there could be issues for recalling the loan or a fixed lock in period for the loan. US banks generally charge no processing fees.
- The most economical in processing fees is Bank of Baroda as the entire processing fees is refundable.
- 10. What is the interest rate flexibility offered by education Loan? Which are the financial institutions that offer such services?
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Some education loan providers have the flexibility where the applicant can choose to start repaying the interest plus principle after he finds a job. The same is referred to interest flexibility.
- Banks such as SBI & BOB have the flexibility. Axis does not have the flexibility
- All NBFC can have partial repayment of loan. The same needs to be negotiated at the time of sanction.
- Prodigy has the interest rate flexibility where as M power does not have the same.
- In case of US banks you choose the loan repayment options most suited to you.
- 11. Is the interest rate for education loan Variable? Which are the education loan providers that have variable interest rate?
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The interest rate is variable based on the academic profile of the student and the co signor profile.
- Bank of Baroda and Axis bank have a list of universities where they give preferential rates. SBI does not have any preferential rates.
- All the NBFC have range of interest rate depending on the profile of the student, co signor profile and availability of mortgage able security.
- Among the International Funds - Prodigy has flexible pricing. Mpower has fixed pricing.
- US banks have variable interest rate based on course, University and co-signor profile.
- 12. How much time does a overseas education loan provider take to process an education loan?
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The general time takes anywhere from 2 days to 45 days.
- Generally banks are the slowest and it takes between 30 days to 45 days. Some banks like Bank of Baroda are becoming digital and hence processing can take between 15 days to 30 days.
- NBFC for unsecured loans generally provide sanction in 7 to 15 days.
- International Funds - M power & Prodigy both are online and can provide you a sanction letter with 4 to 7 days.
- US Banks generally take around 15 days to complete.
- 13. What steps can you take to decrease the time to process the loan?
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To decrease your loan processing time you should look at the following steps
- Decide you chosen loan provider quickly. We at Edu-loans provide unbiased comparison.
- The most critical parameters for the loan to process faster are the complete set of documentation. The candidate can be cautious at the time to submit the entire set of documentation without any delay.
- Procedure - You can also look to do both Property valuation and legal verification simultaneously to increase TAT
- We also recommend trying to speak to your loan officer directly to process your file.
- 14. Which overseas education loan provider provides Door to door service?
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All NBFC and private banks such as Axis provide door to door service. They have dedicated relationship managers who would come to your house and explain all the details of the loan. It would be very convenient for you to process the loan. All signing of documents takes place in the house.
- 15. Which are the overseas education loan providers that provide paperless services?
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International funds such as prodigy and Mpower are completely online. They involve you going on their website and filing up the form. They require you to upload various documents such as I20 etc . In general terms you would need to execute the loan document which is internationally valid either in your home country or in your country of study. There is generally no face to face communication.
- 16. What is the role of GRE/GMAT score is assessing your overseas education loan application?
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Many financial service providers especially NBFC consider the GRE score as a benchmark in deciding the risk profile of the student. You would require scoring a 300 (in general) in GRE for you to be considered for an unsecured loan. The interest rate also depends on the GRE score for major NBFC’s.
- 17. How much country of study determines your education loan parameters?
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USA enjoys a special privilege among all financial institutions. They have a limit of generally INR 40,00,000 for STEM and MBA courses in USA. Among other countries the university profile determines the security requirement in the education loan. Canada, Germany & Australia have generally maximum unsecured loan of 25,00,000.
- 18. What are the type of courses you are eligible for education loan ?
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You are eligible for long term courses such as Diploma ( 1 year +), Bachelors degree, Post graduate Diploma (1Year) and Masters degree. Most banks would not fund for a short-term courses. The interest rate and security required would also depend on the type of course. Like for example unsecured loan is only available for students studying at the masters level.
- 19. How does the University you are studying affect your overseas Education Loan ?
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University is one of the most important parameter to ascertain eligibility and parameters of the loan. Many financial institutions offer you a special rate - Bank of Baroda & Axis Bank in case you are studying in there list of institutions. Axis bank also would offer you an unsecured loan in case your university falls in the list of institutions. International funds both Mpower and prodigy primarily rely on your course and university for checking eligibility. Hence University admitted becomes one of the most important parameter for the loan.
- 20. What is the difference between a salaried and non salaried co-signor profile ?
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Financial institutions categories the risk profile of a salaried and non salaried co signor differently. They generally associate higher risk with non-salaried co signor where in they demand lower FOIR (Fixed obligation income ratio) than salaried professionals. In certain cases such as Bajaj Finserve the interest rate varies with salaried and non salaried co-signor profile.
- 21. What is the Loan to value property of various education loan providers?
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The Term Loan to value is the percentage upto that the education loan provider would lend against the property. Most banks lend upto 80% - 85% of property value. NBFC lend upto 100% of property value. LTV becomes relevant when the requirement of the loan almost equals the property provided for security.
- 22. How does age of the property affect your chances of getting a loan ?
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The age of the property would determine the property valuation. Every education loan provider would provide up to the valuation of the property. In certain cases the property is very old or unstable loan can be denied against the property. The risk is that the property would break down when the loan is in progress that would lead to loss of security for the bank.
- 23. What are the types of property against which you can get an education loan ?
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All Residential and commercial property can be mortgaged. The property should have a clear title deal and should not be under the rent control act. The property also needs to be with in city limits and any construction outside municipal corporation limits is generally not accepted. The financial institutions also reluctantly accept land but never accept agriculture land as security. Its important to note all the property documents need to be registered and legally clear to be accepted as a security.
