For numerous Indian students, securing an educational loan is a critical step towards accomplishing academic success. Still, lacking a proper credit score and a clean credit history can pose significant challenges in securing education loans on easier terms.
Even in such circumstances, it is important to acknowledge the fact that there are still several avenues available to obtain education financing even without a robust credit profile. Let us discuss a few different options available for applicants to secure education loans without a credit score.
Government-backed schemes offering relief
The government of India has initiated several schemes to help and assist students from economically weaker sections (EWS) of the country. The Central Sector Interest Subsidy scheme (CSIS) provides for interest subsidies during moratorium periods for all eligible students studying professional or technical courses. This scheme is only applicable for students from economically weaker sections, with annual income of their parents not exceeding ₹4.5 lakhs.
On similar lines, the Credit Guarantee Fund Scheme for Education Loans (CGFSEL) provides for credit guarantees, reducing the need for collateral thus making availability of loans for students without credit history easier. It is important to remember that CGFSEL applies to loans under model education loan schemes.
The main objective of these schemes is derived from the idea that it is not possible for students to earn while they are studying. That is why along with loans they are given due time to repay the same once their education is complete.
Further, for complete details on these schemes on an individual basis refer to the official website of the Department of Higher Education, Ministry of Education.
Leveraging collateral and co-applicants
Leading banks often consider co-applicants and collaterals with a strong credit profile to reduce and mitigate the risk associated with lending to individuals who lack credit history. The focus of banks is simple, they aspire to lend money to borrowers who have nearly no chance of defaulting on their availed loans.
For example, banks such as Axis Bank, HDFC Bank, ICICI Bank among others provide for loans against securities and collaterals. According to the directions of these banks, pledging of assets such as property, fixed deposits can enhance the chances of loan approvals.
Further, having a co-applicant such as a parent or guardian with a solid credit profile and a strong credit score such as a score in the range of 750 or more, can immensely boost the chances of success with education loan applications.
Exploring NBFCs, banks and alternative lenders
Prominent Non Banking Financial Companies (NBFC’s) and banks have emerged as viable options to avail loans for students facing economic challenges. Several lenders offer competitive education loan interest rates, HDFC Bank education loans begin from 9.55% per annum and Bajaj Finance starts at 10.25% along with others.
| Lender | Starting Interest Rate per annum (p.a.) | Key Requirements |
|---|---|---|
| HDFC Bank | 9.55% p.a. | Strong co-applicant or collateral improves chances of approval |
| ICICI Bank | Varies by profile | Collateral or co-applicant with good credit history is recommended |
| Bajaj Finance | 10.25% p.a. | Requires collateral or creditworthy applicant |
Note: Interest rates are indicative and subject to change. Final rates and approval depend on the applicant’s profile, collateral offered, and co-applicant’s creditworthiness.
It is important to clearly note, that these interest rates are illustrative in nature and the final rate applicable on an individual is dependent on several factors such as credit profile of co-applicants, amount of collateral provided, past credit history if any, co-applicants credit score etc.
Therefore, for the most updated and accurate information it will be prudent if aspirational applicants reach out to their respective financial institution and discuss the issue with the customer service team for clarity. You can also compare interest rates applicable on these loans on an individual basis through EMI calculators provided on respective websites.
What are some key considerations for applicants?
While options exist, students should be mindful of certain factors:
- Applicable interest rates: Loans applied for and obtained without a strong credit score and a long credit history may come with higher interest rates.
- Amount of loan availed: The absence of a collateral or a co-applicant with a strong credit profile and a high credit score might limit the maximum loan amount.
- Repayment terms: Understanding the repayment schedule, associated penalties if the payment EMI is missed by chance, and any associated implications on the credit scores of co-applicants must be discussed with the lender.
- Hidden charges: You should also discuss clearly if there are any processing fees, hidden charges, prepayment fines etc., that you should be aware of as an applicant of the loan.
- Clarity on total borrowed amount: You should also have clarity on the total borrowed education loan amount along with the total value of interest that you will pay over the entire loan tenure. So that once you add both you clearly know how much money you will repay to your lending institution. This will give you a fair idea about the implication of applicable interest rates on your education loan.
Therefore, these are some important points to always keep in mind, if you are a borrower or student applicant who aspires to secure a fairly reasonable education loan without having any past credit history and credit score.
Hence, these concepts will assist you in taking better decisions, still it will be prudent in your own interest to discuss your financial health, long term goals, credit score implications and long term aspirations with a certified financial planner before considering applying for education loans from any lending institution.
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