Margin Money in Education Loan

    Updated on: 16 Jan 2023


    When it comes to education loans, there is a lot of financial jargon that confuses students, and margin money is one of them. Not familiar what is the meaning of this term?

    What is Margin Money?

    Margin money is the percentage of money the bank decides the borrower must pay from their pocket to the total loan amount. The bank will minus a certain percentage of money from the total expense and grant the rest to the student. In simpler words, the difference between the total required sum and the granted amount can be called margin money.

    The total amount required - Bank granted amount = Margin money (to be deposited by you)

    Assume Mr. X is going to a US university where overall expenses for two years are INR 45 lakhs. Mr. X approached GyanDhan (he made a smart choice, I’d say!) for his education loan requirement for abroad study and got a loan sanctioned of INR 30 lakhs. This means that Mr. X will take care of INR 15 lakhs himself for his higher education and this 15 lakhs or 33.33 %  { (1-30/45)*100 } is the margin money in Mr. X’s case.

    Check Your Education Loan Eligibility Apply Here

    What is the Formula for Margin Money in Percentage?

    (1- (Loan Amount Sanctioned) / Overall Expenses) )*100

    Lets understand it through an example

    In the first semester, Mr. X requires Rs.10 lakhs for tuition fees and living expenses. When Mr. X approaches his bank, the bank will provide INR 6.67 lakhs as per the 33.3% margin calculation above, once Mr. X either pays 3.33 lakhs to the university directly and shows the receipt to bank or deposits it in the bank so that the bank can transfer the entire 10 lakhs to the university. Please note Mr. X can use each penny of INR 30 lakhs sanctioned but at each disbursement, he will get 66.7% of the requested amount. And that’s why having lower margin money is always beneficial.

    What is the Margin Money Fixed by the Major Banks and NBFCs?

    Let us take a look at the margin money fixed by different public and private sector banks and NBFCs for their education loans.

    Margin Money of Banks and NBFCs

    Banks

      Minimum Margin Money Requirements  

    SBI

    Global Edvantage: 10%
    Student Loan - Up to INR 4 lakh: NIL
    Over INR 4 lakh: 15%

    BoB

    Upto INR 4 lakhs: NIL,
    Above INR 4 lakhs: 5%

    Axis Bank

    Upto INR 4 lakhs: NIL,
    Above INR 4 lakhs: 15%

    ICICI Bank

    Nil for up to 20 lakhs
    Nil for Premier institutions
    5-15 % above 20 lakhs

    Avanse

    NIL

    Auxilo

    NIL

      HDFC Credila  

    NIL

    Incred

    NIL

    Prodigy

    NIL

    IDFC

    NIL

     

    Education Loan

    How is the Margin Money Related to Overall Expenses?

    Margin money is inversely proportional to overall expenses for a given loan amount, it means lower the overall expenses higher will be the margin money for a given loan sanctioned amount. For students going to the US, when calculating EMI overall expenses, banks typically double the amount mentioned in I-20 letter which decreases the margin money for the students. We realize that this is not a fair reflection because the living expenses in I-20 letter are always more than the actual (one of our team members studied abroad). At GyanDhan, we are helping students in address concerns on the margin money by taking up their cases with the partner banks. Just another reason for interested students to contact us or register with us. 

    Still Confused About Margin Money?

    Fill this form and get in touch with an expert

    Banks have an upper limit on the % of overall expenses they are going to fund, which varies from 85% to 100% in the case of our partners. The remaining amount is what is required from the customer as the margin money. The number quoted by banks is the maximum limit of the expenses bank will bear and exact margin money depends on a case to case basis.

    For Example:

    Let’s assume overall expenses is INR 45 lakhs and the maximum amount the bank can fund is 85%.

    1. Mr. X can get 85% of INR 45 lakhs from the above bank, i.e INR 38.25 lakhs. If the student gets a loan of 38.25 lakhs, the margin money is 15%

    2. If Mr. X gets loan sanctioned for INR 30 lakhs, then the margin money required by the banks is no longer 15% but 33.3% as shown in the calculations in the start.

    Most of our partner banks have either n o processing fees or flat fees. This is critical as this means that the student must maximize the loan amount that they can apply for. This helps in dealing with unforeseen circumstances, and reduces the margin money, without any upfront costs.


    Frequently Asked Questions

    What are the benefits of margin money on education loans?

    Banks consider margin money a sign of commitment between the lender and the borrower. Margin money reduces your total loan amount to be paid back. Margin money can be increased if you are willing to deposit more.

    What is margin money in SBI Education loan?

    10% is the normal margin money for SBI loans. However, this can be increased if the total loan amount increases and vice versa.

    Which bank offers 0% margin money?

    HDFC Bank’s HDFC Credila offers 0% margin money. Private lenders like Avanse, Auxilo, Incred and Prodigy Finance also offer loans with 0% margin money.

    When the margin money can decrease ?

    Margin money can decrease only when the bank grants more of the total expense. It is up to the decision of the lender. 

    Do I have to arrange my margin money immediately?

    There is no immediacy to deposit margin money in a single go. The applicant can deposit it when the loan amount is granted. Semester-wise depositing is also possible.

     

    Read Also:

    Want to discuss in details? You can easily check your loan eligibility on our website and our education loan counselor will contact you for further discussion. Also, if you are planning to take an education loan via SBI, then we have launched a new service of door pickup of documents (at zero cost) which will reduce your time and effort substantially. 

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