The continuous increase in the abroad education cost and the depreciating value of Indian currency has made the study abroad dreams expensive. Only a few privileged people can afford such expenses out of their own pocket while the others have to look for an education loan- the most-preferred education funding source. Today, public-sector banks, private banks, and NBFCs (non-banking financial companies) offer abroad education loans to the students. These loans cover all the expenses that might incur during the course.
When does a bank decline an education loan?
With a substantial increase in the bad loans in the education field, lenders have become uncompromising and rigid while providing student loans. Thus, the education loan rejections in general are also increasing. Some of the major reasons why a bank or NBFC declines an education loan application are:
- If the CIBIL score of the student or the co-applicant is poor. Usually, a CIBIL score of more than 700 is considered to be good enough.
- If the student has provided incomplete or counterfeit documents.
- If the college or university is not recognized and has a poor placement record.
- If the course from that college is not approved.
- Distance-learning, part-time, and correspondence courses are usually denied.
- The academic record of the student reflects inferior performance.
- The enrolment letter is missing.
In the case of secured loans
In an education loan with collateral, the loan applicant has to pledge a financial asset for risk mitigation for the bank. In general, there are two causes of the rejection of a secured education loan:
a) The asset or the property can be the primary reason behind the rejection. If the lender feels that the collateral the applicant is pledging doesn’t cover the loan risk, it will reject the application. Following are the factors regarding the property pledged that are double-checked by the lenders while considering a secured loan:
- The ownership
- The legitimacy
- The estimated value
If the bank has any doubt in these areas, the loan might get rejected. Also, if the property is considered agricultural land or lies in the purview of Gram Panchayat, the loan application might get declined.
b) Incorrect documentation is also a major reason for loan application rejection. Other than the regular paperwork, loans with collateral also require extensive documentation for the collateral. If there is a document missing or there’s an issue with the filed papers, the loan application might get rejected.
In the case of unsecured loans
In an unsecured loan, the applicant doesn’t need to provide any collateral. However, the sanctioned amount, in this case, is lower than a secured loan. Also, these loans are harder to get than secured loans. There are two major factors due to which an unsecured loan might get rejected by the lender:
a) As there is no collateral put as a security, the lenders base their decision of approving an unsecured education loan on the co-applicant’s income. If the total monthly income of the co-applicant is insufficient to pay the interest amount during the moratorium period, the bank will find it risky to approve the loan. Therefore, it is essential for the co-applicant to have an adequate bank balance and a satisfactory monthly income.
b) A poor CIBIL score is also a major reason behind the rejection of an unsecured education loan. When the banks evaluate the co-applicant’s financial profile, they comb through his/her payment history as well. If the co-applicant has defaulted on a previous loan or credit bill, the loan application gets rejected.
In general, the abroad education loans get rejected due to some minor reasons- something that can be taken care of through expert guidance. GyanDhan, India’s first education loan marketplace, has helped thousands of students with their loan applications. Their dedicated team of education loan counselors catches all the red flags right at the start of the process. Importantly, it provides its expert loan assistance free of cost! GyanDhan increases the chances of abroad education loan approval through its partnership with various banks and NBFCs that broadens the options for a student and reduces the odds of loan rejection.
Always keep in mind that in a dearth of proper guidance and expert assistance, the chances of education loan approval are low. Be smart, stay one step ahead!