What is the Role of Co-Applicants in Education Loans?

When you're looking into student loans without collateral, you'll often come across the term "co-applicant." It might sound complicated, but it's actually pretty straightforward. A co-applicant is someone who teams up with the main borrower – usually the student – to apply for the loan. This person shares the responsibility of education loan repayment, which is especially helpful while the student is still studying.

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What is a Co-Applicant in Education Loans?

Having a co-applicant can be a big plus. It can boost your chances of getting the loan approved, possibly get you lower interest rates, and means you're not the only one responsible for the loan. Co-applicants give lenders more confidence by showing that there's more financial stability behind the loan. For students and their families, understanding this part of student loans is really important. It's not just about focusing on your studies – you also need to be smart about handling the financial side of things. Co-applicants can be a big help in sharing the load.

A co-applicant or a cosigner in education loan is an individual with a stable financial profile who jointly signs the education loan agreement with the student borrower. Unlike a co-signer or guarantor, a co-applicant actively shares the loan burden rather than merely serving as a backup payment method. In essence, they become the primary contact for banks in case the student borrower faces challenges in repayment.

Types of Co-Applicants in Education Loans

There are two primary types of co-applicants:

1. Primary co-applicant: Often parents, they are chosen irrespective of their financial situation. Government banks may allow students to include retired individuals or those without a steady income as primary co-applicants for secured education loans.
2. Financial co-applicant: Required in cases where students cannot appoint individuals with a permanent income as primary co-applicants. Eligible individuals include first cousins, own family members, paternal or maternal uncles or aunts, provided they have a stable income.

Who can be a Co-Applicant for an Education Loan? 

Different lenders have different eligibility criteria for being a co-applicant.

1. Public banks - Parents / Parents-in-law, siblings, parents siblings, spouse
2. Private banks - Parents / Parents-in-law, siblings, spouse
3. NBFCs - Parents / Parents-in-law, siblings (preferably brother over sister), spouse, first cousins, parents siblings

Eligibility Criteria to be a Co-Applicant in Education Loans

Co-applicants in education loan eligibility criteria aim to ensure a close and reliable connection between the student borrower and the co-applicant, establishing a strong foundation for shared responsibility. 

1. The co-applicant can be a parent, legal guardian, sibling, or any blood relative of the student applying for the education loan.
2. The co-applicant must willingly assume the role of the primary debtor, taking responsibility for loan repayment in case the student faces difficulties.
3. The co-applicant must have an active Indian bank account, allowing the co-applicant to sign cheques, which is essential for loan disbursement and repayment purposes.

Must Read: Education loan eligibility criteria

Difference Between a Co-applicant vs Guarantor

Both guarantors and co-applicants help borrowers secure a loan, yet they have different roles and responsibilities in the education loan application process. A guarantor is an individual who is responsible for the education loan repayment if the borrower defaults. Whereas, a co-applicant is a person who jointly applies for the loan and shares equal responsibility for repayment of the education loan. Below are listed some primary differences between a co-applicant and a guarantor.
 

1. The guarantor acts as a backup source for repayment; and intervenes only if the borrower fails to repay. On the other hand, the co-applicant actively participates in the loan application; and shares the financial burden from the start.
2. The guarantor acquires financial liability only in case of the borrower’s default. In the case of co-applicants, equal responsibility for loan repayment; and joint liability from the beginning is stated for them.
3. The need to submit financial documents is not necessary for the guarantors however for co-applicants it is mandatory to submit financial documents along with other documents required for education loan.

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Additional Factors Considered by Lenders Regarding Co-Applicant

1. CIBIL score: The co-applicant's CIBIL score, reflecting their creditworthiness, is a crucial consideration for lenders. A higher CIBIL score enhances the chances of loan approval.
2. Income tax returns (ITR) Document: Submission of the co-applicants income tax returns or any other income proof like an income certificate is typically required, offering crucial financial information for assessing income and stability.
3. Income proof: Salaried individuals must provide salary slips and the salary bank statement, while self-employed individuals need to submit various documents such as GST registration proof, partnership deed, memorandum of association, and ITR along with the profit and loss balance sheet.
4. Annual income: Lenders assess the co-applicant's annual income to ensure they meet the minimum income criteria, thus increasing the likelihood of loan approval.

Must Read: Tax benefits on eduction loan

It's important to note that specific eligibility criteria may vary among lenders, necessitating careful consideration and consultation with individual financial institutions.

Document required for an Education Loan by the Co-Applicant

How to Apply for an Education Loan with a Co-Applicant?

Applying for an education loan with a co-applicant increases your chances of approval and helps you secure a lower interest rate. A co-applicant is typically someone with a good CIBIL score and financial stability, such as a parent or guardian. Below are the general steps to apply for an education loan with a co-applicant.

1. Exploring different lenders - Explore interest rates, processing fees, repayment terms, and eligibility criteria for education loans provided by different public and private banks and NBFCs.
2. Check loan eligibility - Check loan eligibility criteria. This may include factors such as your academic record, the course you are pursuing, and the educational institution's reputation.
3. Selecting a co-applicant - Choose a co-applicant with a reliable income, a positive credit score, and a willingness to share financial responsibilities. Consider factors such as family ties, trustworthiness, and age.
4. Submitting the loan application - Visit the lender's branch or submit an application online. Alternatively, seek guidance from a loan expert.
5. Document submission - Submit the required documents for both the student and co-applicant, ensuring they are self-attested and valid.
6. Credit verification - The lender will conduct a credit check and verify the income details of the co-applicant.

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The role of a co-applicant in education loans is undeniably significant, offering a pathway for students to access financial support with increased credibility and favourable terms. Choosing a co-applicant wisely, someone with a stable income, a positive credit history, and a shared commitment to the educational journey, can greatly enhance the chances of loan approval and more favourable interest rates.

For a seamless and hassle-free experience in securing the best education loan without the need for numerous branch visits, GyanDhan emerges as a valuable ally. GyanDhan, a leading education financing platform, has revolutionized the loan application process, providing a user-friendly online platform that connects students with lenders offering tailored education loans. Through GyanDhan's innovative approach, you can explore multiple loan options, compare interest rates, and benefit from personalized guidance without even stepping out of your comfort zone. Not only this, but all services at GyanDhan are completely free of cost. To start, check your loan eligibility now.

Read Also

• Documents Required for Education Loan
• Education Loan Details: Eligibility Criteria and Basic Documents Requirement
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• Get Education Loan without Parental Income for Abroad

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