Transferring Your Education Loan: How and When to Do It

Let’s say, Rohit, a post-graduate student took an education loan of INR 30 Lakh at 12%. His EMI was INR 43,566 and his total amount payable to the bank including the interest was INR 71,84,00. However, he transferred his loan to another bank with a 10% interest rate, where his EMI became INR 40,462. And his total amount payable became INR 63,12,000. Can you see the amount that Rohit will be saving? Can you imagine how much money you can save, even with a 2% lower interest rate? If you are wondering if can we transfer education loans from one bank to another?

The short answer is Yes, you can transfer your student loan to a different bank. This procedure is called an education loan balance transfer, entails switching from one lender to a better one for your current loan. There are a number of reasons why this decision might be made, including more advantageous repayment plans provided by another bank, better service terms, and reduced interest rates. 

What Does Transferring an Education Loan From One Bank to Another Mean?

Transferring an education loan from one bank to another is essentially the process of moving your existing loan debt from your current lender to a new one. This financial maneuver is typically pursued by borrowers seeking more favorable terms than those associated with their current loan. The decision behind seeking a new lender can vary widely but often revolves around issues like high-interest rates and rigid repayment policies that can make managing the loan more challenging and expensive over time.

Also read about SBI’s Takeover Education Loan

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What are the Types of Education Loan Transfers?

There are four main types of education loan transfers, also called loan takeovers. 

Transferring from Secured Loans to Secured Loans

This type entails transferring a collateralized education loan to a comparable collateralized loan. In these cases, the transfer procedure is usually handled with photocopies of the collateral documents since the originals are not available until the first loan is closed and the original collateral is linked to the first loan.

Transfer from Unsecured Loans to Secured Loans

At first, borrowers may choose to apply for an unsecured education loan from private financial institutions or Non-Banking Financial Companies (NBFCs) if they are short on time or do not have the necessary collateral documents. But as repayment gets underway, it becomes clear how much more expensive these loans are. The total cost of the loan can be decreased by transferring to a secured loan, which is frequently provided by government banks and has lower interest rates. By doing this, borrowers can reduce the amount of collateral they must provide.

Transfer from Unsecured to Unsecured Loans

This action may be taken by borrowers in order to benefit from particular advantages not provided by their original lender, such as tax deductions on loan interest payments under certain provisions (such as Section 80E in India), which can save money on taxes. The transfer between NBFCs and private banks happens frequently.

Transfer from Secured to Unsecured Loans

A borrower may transfer a loan from being secured (backed by collateral) to unsecured (not backed by collateral), though this is less common. This typically happens when the owner of the collateral needs to release the asset from the loan obligation because they plan to sell it. This option releases the collateral for sale, even though an unsecured loan may have higher interest rates.

Depending on the circumstances, financial objectives, and collateral availability of the borrower, each of these transfer types presents a different set of benefits and considerations. When thinking about transferring their education loans, borrowers can make more informed decisions if they are aware of these categories. 

Watch the video now to learn everything about refinancing education loans, including benefits and processes

What is the Process of Transferring an Education Loan?

The transfer process involves several key steps, which are generally as follows:

Research and comparison: To select the best deal, the borrower must first investigate possible new lenders and compare interest rates, repayment schedules, and other loan terms.

Check eligibility: The borrower must make sure they fulfill the requirements of the new bank to be eligible for a transfer of their education loans once a potentially better bank has been found.

Obtaining a No Objection Certificate (NOC): An NOC from the current lender must be provided, stating that they have no issues with the loan being transferred to a different bank.

Application to the new bank: The borrower applies for a loan transfer at the new bank with the NOC and the necessary paperwork. This application will contain information about the current loan, academic standing, financial situation, and any details about collateral or guarantors.

Loan settlement and transfer: If the application is accepted, the loan will essentially be transferred because the new bank will pay the current bank the remaining balance. After that, the borrower will start making payments according to the conditions set forth by the new lender.

What are the Factors Borrowers should Consider Before Transferring?

Even though transferring an education loan can result in improved service and financial relief, there are a few things to keep in mind:

Costs involved: The transfer of the loan may come with processing fees, penalties for early payments from the current bank, and other costs. It is important to compare these expenses to the possible savings from lower interest rates.

Loan tenure: Transferring later in the loan tenure might not be as beneficial, as more of the interest has already been paid. Early in the loan period is generally the best time to transfer to maximize savings on interest payments.

Terms and conditions: It’s crucial to thoroughly understand the new bank's terms and conditions to ensure they are indeed more favorable than your current loan’s conditions.

What are the Eligibility Criteria for transferring Education Loan from one lender to another?

To facilitate a seamless transfer of education loans from one bank to another, borrowers must fulfill certain eligibility requirements. These requirements are made to safeguard the interests of the receiving bank as well as the borrower, guaranteeing that the transfer is practical and advantageous to all parties. Here is a more lucid illustration of the circumstances that could lead to the consideration of an education loan transfer:

Completion of disbursements: According to the terms of the current loan arrangement, the borrower should have received all of the scheduled disbursements from the current lender, so no more money is anticipated to be disbursed. In essence, there should be no expectation of further borrowing from the original lender after the loan has been fully disbursed.

Commencement of repayment: The original loan must have been repaid by the borrower in Equated Monthly Installments (EMIs). Repayments must be made regularly; otherwise, the borrower's credit score (CIBIL score) may suffer, which could make the transfer process more difficult.

Additional Terms for Consideration

For Secured Loans: The new lender will take ownership of the collateral if the existing student loan is secured by it. Until the loan is entirely repaid, including any accumulated interest, the collateral will stay in the possession of the new bank.

Transferring Unsecured Loans to Secured Loans: If the borrower wants to move from an unsecured loan to a secured loan, particularly with a government bank, they will need to provide appropriate collateral. In order to secure the loan with the new bank and pay off any outstanding balances with the previous lender, this new collateral is required. In these cases, there is usually no need for a margin because the loan amount awarded against the collateral usually pays for 100% of the obligations.

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What are the Top 5 Benefits of Education Loan Transfers?

Borrowers wishing to maximise their loan terms and overall repayment plan can benefit from a number of strategic and financial advantages that education loan transfers in India can offer. The following are the top five advantages of moving an Indian education loan to a different bank:

Reduced interest rates: Getting a better interest rate from a different bank is one of the main advantages of transferring an education loan. Even a modest percentage drop in interest rates can have a big impact on the overall amount of interest paid over the course of the loan, saving a lot of money.

Better terms for repayment: Banks vary in what they offer in terms of repayment, and some may be better suited to a borrower's current financial circumstances than others. By transferring a loan, borrowers may be able to take advantage of longer repayment terms, more convenient EMI options, or more flexible repayment schedules, all of which can improve their capacity to manage their money.  

Access to enhanced services: Some banks may offer additional services, such as more accessible customer support, online account management, and flexible disbursement options. Transferring an education loan can provide borrowers with not only better financial terms but also an improved banking experience and additional conveniences.

Loan consolidation: Moving several education loans to one lender can assist borrowers in combining their debts into a single loan that only requires one monthly payment. Consolidation can facilitate budgeting and cash flow management by extending repayment terms, lowering interest rates, and simplifying financial management.

Release of co-applicant: In certain situations, moving an education loan to a different bank may offer the chance to free a co-applicant, who is typically a parent or guardian, from their loan commitment. This can be especially helpful if the primary borrower is now in a stable financial situation and wants to assume full loan responsibility, which will lessen the co-applicant's financial burden.

Before transferring an education loan, borrowers should make sure these requirements are satisfied by carefully examining them. Fulfilling these prerequisites facilitates the transfer process and puts the borrower in a better position to negotiate better terms—like lower interest rates or more lenient repayment terms—with the new lender.

Transferring a student loan to a different bank can be a wise financial move with the potential for large savings and better terms for repayment. Careful planning, extensive research, and a clear understanding of one's financial situation and goals are essential for a successful transfer. 

Borrowers should weigh the immediate costs against long-term benefits, considering factors such as interest rates, loan tenure, and the terms and conditions of new loan offers. Furthermore, GyanDhan’s strategic negotiation support, leveraging strong banking relationships, often results in more favorable loan terms for borrowers.

Our dedication to the success of borrowers is demonstrated by our committed end-to-end support, which takes care of any issues from the time of the initial inquiry until the loan transfer is completed. Therefore, if you want to transfer your education loan, check your eligibility for the best education loan deal now.

Read Also:

Effective ways to plan your education loan repayment

How to save interest amount on education loan.

Education Loan Disbursement Process

Education Loan Process for Abroad Studies

Education Loan Refinancing: Process and Eligibility Criteria

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