Education Loan

Education Loan Refinancing: Process and Eligibility Criteria

Education Loan Refinancing: Process and Eligibility Criteria

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Worried about repaying EMIs for your student loan? Refinance your education loan at a lower interest rate. Read about it in detail in this blog!

GyanDhan
Aman

Updated on:  10 Oct 2023  | Reviewed By:  ankit-mehra  | 6.29K | 6  min read

Taking an education loan solves a major financing problem that many students face. While a loan approval eases the tension and the stress of paying large sums of money, the repayment of the loan is the real challenge that often baffles students. Defaulting on loans is not an option as it negatively impacts the credit score. However, an easy way to reduce the financial; burden is to restructure the loan. This can be done by refinancing the education loan, that is paying the existing loan with a new loan. 


 

Check Your Education Loan Eligibility

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What is an education loan transfer or refinancing of an education loan? 

In simple terms, student loan refinancing is taking a new loan at a new interest rate to pay off the previous education loan. The aim of refinancing is to get a better rate of interest and different terms and conditions. 
For Example, you took an education loan from a private lender in a hurry at a higher interest rate and unfavorable terms and conditions at the time of admission. To reduce the financial burden, and get a lower interest rate, you can switch to a lender that is offering better terms and conditions. Most Indian lenders, including public banks, private banks, and Non-Banking Finance Companies (NBFCs) offer education loan refinancing options.  
 

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How can you save money with refinancing? 

Most students are not aware that interest rates in refinanced education loans are lower. Let’s take an example - 

You took an education loan of INR 20 lakhs at 12%, which has to be paid in 9 years (including 2 years of course of study). The interest that you will pay is INR 19,68,553. 
Now, if you refinance this education loan from a lender offering you a 10% interest rate upon graduation (ie, 7 years), the interest payable will effectively fall down to INR 11,39,007. 
The difference is a massive INR 8,29,546. 

Apart from a lower interest rate, some borrowers also refinance their secured education loan to an unsecured education loan. This frees up their property and reduces the financial burden from the family member who provided collateral. 
 
Some other benefits of refinancing an education loan are as follows - 

  • list items Consolidating Different Education Loans into One - If a student is paying multiple loans taken for graduation and postgraduation, they can consolidate their loans instead of paying interest on these different loans. 
  • list items Extend Loan Tenure - If a student is unable to repay the loan in a stipulated time, restructuring the loan will help extend the loan repayment period. With an extended repayment period, the EMIs will be lower. However, students should keep in mind that in this case, the total interest paid will go up. 
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What is the best time to refinance your education loan? 

The best time to refinance your education loan is when you start working, due to the following reasons - 

  1. list items A steady job will reduce the risk of default.
  2. list items You are in a better position to negotiate terms and conditions for your new education loan. 
  3. list items The bank is aware of your income and ability to repay the loan, hence, you will qualify for a lower interest rate and better terms and conditions.    

 

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What are the eligibility criteria for refinancing an education loan? 

Students can opt for loan refinancing if - 

 The factors taken into consideration are - income, credit history, credit score, debt-to-income ratio, financial behavior, employment history, residency status. 

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What is the process of refinancing an education loan? 

The process to refinance an education loan is simple - 

  1. list items You will have to approach the current lender and apply for loan foreclosure with a loan foreclosure application. 
  2. list items After exploring a better loan option, apply to refinance your existing education loan. Arrange documents required to apply for the loan. 
  3. list items Once the lender approves your loan, it will issue a cheque for the outstanding amount to the previous lender. 
  4. list items Once the cheque is cleared, the previous lender forecloses the loan and releases your original documents. 
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What are the documents required to refinance an education loan? 

Here are a few documents that are required to transfer the student loan - 

  • list items Loan application form 
  • list items Documents given by the previous lender 
  • list items 2 passport photographs 
  • list items KYC of the borrower and the co-applicant - Aadhar card, PAN card
  • list items Proof of identity 
  • list items Proof of residence 
  • list items Bank account statements of the student/co-borrower/guarantor of the last 6 months 

Other financial documents such as the IT Return, proof of income, and a brief statement of assets and liabilities of the parent/co-borrower.

Check Your Education Loan Eligibility

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What are some of the terms and conditions for refinancing an education loan? 

  • list items Secured Education Loan - If the student has applied for a secured education loan, the existing collateral will be taken over by the new lender. 
  • list items Unsecured Education Loan - If the student is transferring the loan from a private lender to a public bank, they will have to pledge collateral as they provide loans with collateral above the INR 7.5 lakhs. The collateral must be with a value equal to the loan amount.  
  • list items Loan Margin - There is no loan margin when an education loan is refinanced. Public banks such as SBI will give you a 100% loan on the collateral value.  

The rest of the terms and conditions of an education loan are similar to that of a regular education loan. If you are worried about the process and your eligibility, just check your loan eligibility with us. 

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What are the key points that you should consider while refinancing your education loan?

Some key points that you should consider - 

  • list items Foreclosure charges - compare the foreclosure charges to the previous lender and the sum of the processing fee and the interest rate charged by the new lender. Consider refinancing only if you are saving money. 
  • list items The CIBIL score should be more than 750 to get better terms and conditions and a lower interest rate. If the CIBIL score is less than this, the interest rate offered will be high, thereby not helping you at all. 
  • list items Opt for refinancing the education loan in the early stages of loan repayment. 
  • list items Read the loan transfer documents carefully.  
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How can GyanDhan make it easier for students to refinance their education loans? 

GyanDhan aims to make education loans easy and simple for students. We have partnered with several lenders in the market to make it easy for students to apply for loans. Just check your loan eligibility and fill a form on our website to initiate your hassle-free loan refinancing. We will go through your profile, your current interest rate, and the EMI you are paying to suggest to you the lender and the deal to help you save money. We will assist in loan disbursal and loan foreclosure. Get in touch with us today to make your education loan repayment affordable and reduce the financial burden.

Check Your Education Loan Eligibility


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