October 29, 2024 · 11 mins read
Santosh Kumar
With the increased competition, quality education has emerged as a stepping stone to a bright and better future. The price of education has increased all over the world; however, the figure is especially worrisome in the case of post-graduation studies. Engineers and medical graduates have to shell out exponentially high tuition fees for their college years, followed by management graduates and so forth. Among them is the education loan, which is emerging as a very beneficial stopgap to fill this financial gap for students and their parents. But getting an education loan is not an easy thing. There is one important factor that particularly comes into play in the approval process and your CIBIL score. In this detailed guideline, we shall discuss everything you need to know about the CIBIL score requirement for education loans, including the amount that is required for an education loan, how to improve your score and other related insights.
There is not any typical universal standard benchmark maintained by the banks and financial institutions for the CIBIL Score requirement for Education loans. Most lenders tend to prefer applicants with CIBIL scores above 650, but in the case of a regular education loan, the best range is between 700 and 750. However, many other factors, like academic performance, which institution the applicant is being admitted to, or where the applicant stands, may override this necessary requirement.
If your score is more than 750, you stand a good chance of getting an education loan, and banks and other financial institutions will have no hesitation in offering you the best deals by reducing interest rates and providing the best deals for easy repayment.
1. Between 650 and 750: The score is mostly good. Most surely, it would get you the approval for the education loan, but the terms might not be as commodious as those who score better.
2. Less than 650: The chances of getting an education loan become a little sceptical if your CIBIL score is below 650. They might not agree to give the loan or may ask for a guarantor or even more collateral.
It must be noted here that although the CIBIL score is a very important factor, there is more to it than this score. The financial institutions also check the academic potential of the student, the reputation of the institute the student intends to attend and also the credit score and the overall financial well-being of the co-borrower, who usually happens to be a parent or a guardian..
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There are many factors that can influence whether your CIBIL score for an Education Loan will meet the required criteria for an education loan. Here are some main insights on the same:
1. Credit History: If you, or your co-applicant-whom are usually your parent or guardian-have a history of past loans or credit cards, then it is possible to present the account of all repayments. This would have a really bad impact on your CIBIL score in case of delayed payments or defaults.
2. Existing debt: If your co-applicant already had considerable amounts of high unpaid and pending debts, such as a home loan or some personal loans, which decreased his credit score, then the lender might tend to believe that the co-applicant is financially burdened and thus cannot be approved for an education loan.
3. Credit Mix: When you have multiple secured and unsecured loans on record, your CIBIL score will improve. Whenever your co-applicant has only unsecured loans, such as credit card debt, his /her score may be low.
4. Length of Credit History: The longer the credit history, the more information will a lender gain to judge the creditworthiness of a person. When your co-applicant has long credit experience with his repayments on time, the score will be high.
5. Credit Inquiries: Every time you apply for a loan or credit card, it creates a hard inquiry on your credit report, which decreases your score temporarily. Avoid applying for multiple loans or credit cards within a short span of time in order to keep your CIBIL score protected.
Knowledge of such factors can help you determine how much of a CIBIL score is necessary for an education loan and whether you or your co-applicant need to improve the score.
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By any chance, is there any possibility that the CIBIL score requirement for education loans doesn’t exist? One does indeed need a CIBIL score while applying for education loans, but this is surely not the only criterion that determines approval. Even if you or your co-applicant does not have one or has a poor score, there are enough means through which one can get an education loan.
1. Look for Specialized Education Loan Providers: There are financial institutions that specialize in educating loan avenues not only for students with no credit history but also for those who have defaulted on their previous education loans. These lenders go more by the academic potential of the student and the reputation of the institution he or she has been admitted to than by your CIBIL score.
2. Government Education Loans: Most education loan schemes under the government, be it Pradhan Mantri Vidya Lakshmi Karyakram, do not demand a tough score on CIBIL for issuing loans. It is very lenient while filtering eligible candidates for the loan.
3. Collateral-Based Loans: If the CIBIL score is poor, still one can avail of an education loan by offering collateral in the form of property, fixed deposits, or any other asset with the lender. Lenders feel more secure about approving loans when they have a security on the loan amount.
4. Get a guarantor with a good CIBIL Score: If the co-applicant does not have a strong CIBIL score, one can then apply for an education loan along with a guarantor with a better credit history. The guarantor's CIBIL score, too, will work towards improving the prospects of getting the loan sanctioned for you.
The same can be done with an education loan without holding a strong CIBIL score. However, you will not have the maximum advantage with it. You may have a higher interest rate, bad returns, or a money-back situation.
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Having a CIBIL score requirement for education loans and that too a low CIBIL score does not entirely stop one from getting an education loan, but it is sure to make things all the more complicated. A candidate with a low CIBIL score is a high-risk borrower for a bank and other financial institutions. This makes him vulnerable to a higher rate of interest and a shorter repayment tenure. Sometimes, there might also be a mention of requiring a guarantor or even collateral. This might occur if your CIBIL score is below the threshold for consideration.
1. Higher Rates of Interest: The lenders agree to your loan but would charge higher rates concerning the risk that lending to someone with a bad credit history poses. This may, therefore, add up to a lot throughout the life of the loan.
2. Requirement for a Co-applicant or Guarantor: They may ask for a co-applicant, usually a parent or a guardian with a better CIBIL score, or they may require the presence of a guarantor to take away the risk factor for lenders. In case of a default of the loan, the liability of paying the loan amount back would rest with the guarantor.
3. Collateral-Based Loans: In such a case, if the CIBIL score is low, the lenders would ask for collateral like property or other assets to be used in securing the loans. This serves as security to the lender in case you default.
4. Rejection of Loan Application: In very rare cases, if the CIBIL score is too low, your loan application might get rejected. So, improving the score before applying for the loan becomes essential.
Awareness of the impediments helps you strategize around improving the score or finding alternative education loan solutions, such as government-backed schemes or specialized financial institutions.
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While processing many education loan applications, the co-applicants CIBIL score and that of the student form an integral pair. A student is most likely to have no or little credit history; hence, the co-applicant's CIBIL score may play a significant role in the loan approval decision. In most cases, the co-applicant is a parent or a guardian, and his /her financial status forms the basis of a loan approval decision. The following are the key reasons why the CIBIL score of the co-applicant is important:
1. Shared Responsibility: Since most education loans are applied for jointly by the student and co-applicant, both are liable to repay the amount. He wants to know whether the co-applicant, who generally is an earner, will pay back in case the borrower does not.
In case the co-applicant has a good CIBIL score of above 750, this balances out with a poor credit history held by the student. The banks would approve a higher amount of loan with a lower interest rate and more favorable terms.
2. Collateral is not required: With a good co-applicant CIBIL score, you can get the banks to waive off the collateral requirements in many cases, thereby alleviating the hassles of sanctioning a loan and helping you in securing funding without pledging your assets like property.
3. Good Repayment Alternatives: Better repayment alternatives would depend on a good credit score on the part of the co-applicant, such as better tenure or even a moratorium period whereby the repayment could be initiated after the completion of education.
Thus, the CIBIL score of the co-applicant is important and it is advisable to have both applicant students and their families checking their credit scores before applying for an education loan.
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Education loan is an important step for most students into higher education and is very much connected with your CIBIL score. It determines not just your eligibility but also what terms you can negotiate with the lender. Usually, there are even some education loans that require a minimum CIBIL score of 650, whereas, in the ideal range, it stands between 700 and 750 for the best terms on loans. Still, if the score is not so good, options, including collateral-based loans or some government schemes , are open to you.
Knowing the CIBIL cut-off for education loans and taking pre-emptive measures to build your score will enhance your prospects of getting loan assistance for education. Again, it is only through raising good credit scores that help procure loans and control finances.
Repayment of the loan taken has to be very much done on time. Even delayed payments or defaults are reflected in the credit bureau which may negatively affect the CIBIL score for the borrower and the co-applicant. On the other hand, on-time repayments are responsible for instilling a high or good credit score for a client and his co-applicant as well.
1. How high is the minimum CIBIL score for an education loan?
For education loans, most of the banks opt for a CIBIL score of 650 or higher, and scoring above 750 is excellent for negotiating better loan terms.
2. Can an education loan with low CIBIL scores be obtained?
Yes, you can get an education loan with poor CIBIL scores, but it may not be very favourable terms. The lender might ask for a guarantor, collateral, and so on or a higher interest rate.
3. Does it matter whether the co-applicant CIBIL score affects my education loan?
Yes, the co-applicant score will surely work a lot in this process. A good co-applicant score could nullify the low scoring of the primary applicant and might ensure better loan terms.
4. Repayment of education loan affects my CIBIL score in what way?
On-time repayment of education loans improves your CIBIL score. Any delayed payment or default would decrease your score and raise the bar for future loans.
5. Can I improve my CIBIL score before obtaining an education loan in the coming weeks?
One can improve his CIBIL score by clearing small debts, erasing credit card balances, and not inquiring about new credits. However, major changes generally take a few months to reflect on your score.
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