Education is considered as the building block of every society. Investment in education is always rewarding, as it helps build and develop a prosperous, wealthy, and healthy nation. However, with the rise in tuition fees nowadays, education expenses have become very costly. Sometimes, it comes with a cost that may exceed a family’s budget. Therefore, to meet the ever-exceeding education costs, you may opt for an education loan and get the education as per your preference.

Your low credit score could be a hindrance for you to avail an education loan. Therefore, you should first check your credit score online from India’s leading credit bureau (TransUnion CIBIL) for better analysis and insight or from a credit aggregator platform. This practice also helps in checking whether you are eligible to apply for an education loan or not. Here, in this article, you shall get useful information regarding securing an education loan, if you have a low credit score.  

Tips to Avail Education Loan with Low Credit Score

Apply for a Secured Loan

Secured loans are collateral-based loans in which you need to pledge collateral/security in the form of property papers, fixed deposits, stocks, bonds, and other valuable assets with the bank. The submitted collateral lowers the lender’s risk and enhances the chances of your loan approval. 

Securing an unsecured loan could be challenging, as banks do check your credit score before loan approval. It becomes difficult to avail loans with low credit scores.

Apply for a Joint Loan or with a Co-applicant

If you manage to apply for a joint loan or with co-applicant with a high credit score, it shall improve the chances of your loan approval. You can ask your parents or guardians to become your loan guarantor or co-applicant for the education loan. 

You should ensure that your co-applicant whether your parent or guardian has a high credit score, as it helps compensate for your low or zero credit score. 

Check Credit Report for Errors

Make it a practice to regularly check your credit report for errors, as any faulty or mismatched information in your credit report may negatively impact your credit score. 

Resolving these errors at the earliest by raising a dispute online with the respective credit bureau is recommended.

Lookout for Loan Options from NBFCs and SFBs

As banks are strict in offering loans to applicants with low credit scores, you can check various loan options offered by Non-Banking Financial Companies (NBFCs), Micro Finance Companies (MFIs), and Small Finance Banks (SFBs), as they usually do not check your credit score before loan approval. In return, they may offer education loans at higher interest rates, and lesser loan amounts with restricted repayment tenure.

Steps to Avail Education Loan

∙         Check and compare various loan options offered by banks and NBFCs

∙         Check your credit score beforehand to ensure that you clear the eligibility criteria, as defined by the lender

∙         Collate all required mandatory documents, including identity, income and address proofs, admission letters, educational certificates, etc.

∙         Fill in the application form, along with the required passport-sized photographs, and submit it to the desired lending institution

∙         Lenders shall review and verify the submitted documents to further proceed with the loan process

∙         After your loan application is approved, the loan amount shall be directly sent to the educational institution.

Documents Required to Apply for Education Loan

The basic documents required for an education loan that you shall need to submit are as follows:

∙         KYC documents, such as identity and address proofs, PAN card, Voter’s ID, or Aadhaar card

∙         Educational documents: School and college certificates, mark sheets, degrees, diplomas, certifications, etc.

∙         Admission letter from the college or university, along with a copy of fee structure

∙         Last 6 months’ bank statement

For Co-applicant or Guarantor:

∙         KYC documents are the same as mentioned above

∙         Income tax returns, salary slips, and other financial documents

If attending any Foreign University:

∙         Admission letter

∙         Financial proofs

∙         Country-specific forms, including selection letter, forex letter, etc.

For Loan Disbursal:

∙         Loan agreement: Signed by applicant and co-applicants

∙         Proof of advance fee paid to the institution

∙         Collateral/Security documents

Key Takeaways:

To get admission in any reputed education institution, you need to enhance your credit score, as it helps improve loan approval chances. Your stable financial background and a guarantor with a healthy credit score also contribute to availing funds from leading financial institutions. 

Before applying for an education loan, ensure that all the required documents are carefully checked before submission, as any incorrect or mismatched information can lead to loan application rejection. Finally, read all the loan documents thoroughly before signing any loan document.