Education loans are broadly classified into 2 categories. Secured and unsecured loan education loan. Read our article to understand more about the different types of education loans. The parameters considered by financial institutions vary based on the type of loan that you are applying for. Let’s take a look at all these parameters in detail for unsecured education loans
Since there is no physical collateral security backing involved in unsecured education loans, the primary criteria followed by banks for sanctioning an unsecured education loan is the profile of the co-applicant. Let’s take a look at what are the key criteria involved here.
Factors affecting approval of an unsecured loan
- A valid co-applicant: The first co-applicant needs to be an immediate blood relative of the student. Father, mother or any of the siblings can be the co-applicant. The primary co-applicant needs to have the valid document for proving the source of income
- Threshold income level of the co-applicant: The minimum threshold income levels of the co-applicant needs to be above 30K per month. If the primary co-applicant is not meeting the criteria, then a second earning co-applicant can be added. The additional co-applicant need not be an immediate blood relative but a close relative (Uncle, Aunty, Cousin etc). Please note that the second co-applicant should be able to prove his/her proof of income to be considered as a valid co-applicant
- Proof of income: For an unsecured education loan, the co-applicant is required to have a valid document proving the income. This can be salary slips for salaried employees; And his can be proof of their business and the income tax returns filing for the past 2 financial years for self employed/business professionals.
- CIBIL score of the the co-applicant: The CIBIL score of the applicant and co-applicant needs to be in good shape to issue an unsecured education loan. To read more about CIBIL score, read our article on CIBIL here
- Fixed obligations to income ratio (FOIR): FOIR is used by the bank to understand the repayment capacity of an applicant. It is also referred to as the debt to income ratio. While calculating the FOIR, the banks and financial institutions take into account the applicant’s income and the installments of all the loans the applicant is currently paying.The higher the FOIR, lower the chances of getting the loan approved. To more about FOIR, read our article on FOIR here
- Average Bank Balance (ABB): Banks analyze the 6 month bank statement of the co-applicant for unsecured loan purposes. The average bank balance of the co-applicant is a criteria considered to understand the total amount outstanding in the account post all the spending patterns of the user. To find your average daily credit card balance, add the total balance due at the end of each day in a given period of time, and then divide the sum by the number of calendar days in that period. A higher average bank balance is preferred by the bank that indicates excess cash capital availability of the co-applicant
- Total overdues from your existing line of credit: The existing line of credit includes credit cards, personal/home/vehicle/ any other credit obligations that the user might have. Having existing overdues in your credit line negatively impacts your chances of getting the loan approved. Banks also consider your days past due (DPD) which is an indicator of the number of days that you have delayed a payment to your credit provider (bank)
- Past records of loan restructuring: Restructuring is a method used by businesses, individuals, and even governments to avoid defaulting on current debts. During restructuring these entities usualy negotiate reduced interest rates. When a debtor is in financial distress, loan restructuring is a less expensive alternative to insolvency. If there is a past record of any loan restructuring, then it can negatively impact your loan approval chances
Liked the article? Keep following us on our FAQ page to understand more about education loans. Stay tuned to our next blog post on loan parameters considered for secured education loans. If you are looking for an educational loan to support your international study and have a close relative who is abroad, worry not as Cynapse will be able to guide you in achieving your dream of studying abroad. You can write to us at email@example.com in case of any further queries.