Is your education loan becoming a heavy burden? You might be considering refinancing your loan to secure a better deal. If this is your first time exploring loan refinancing, you may have questions about its benefits, eligibility criteria, process, and associated charges. Refinancing can help you save money, but it’s crucial to be aware of any fees involved.
To assist students like you, we have created this comprehensive guide on education loan refinancing. In this article, we explain what loan refinancing is, the key benefits, the banks and NBFCs that offer this service, the best time to refinance, the step-by-step process, and much more. Dive in to explore all you need to know about refinancing your education loan and easing your financial burden.
What is Education Loan Refinance
Education loan refinance means taking a new loan to pay off your old education loan. People do this to get better benefits, like a lower interest rate or smaller monthly payments. For example, if you took a loan at 12% interest and later found another lender offering 9%, you can switch to save money. It’s like trading your old loan for a better one. Refinancing can also help you change your repayment period or combine multiple loans into one. This makes managing your loan easier and can improve your financial health over time if done wisely.
Benefits of Education Loan Refinance
- You may get a lower interest rate, which means you will pay less over time.
- Your monthly payments or EMIs can become smaller and easier to manage.
- You can choose to pay off the loan faster or take more time, based on what suits your needs.
- It lets you combine multiple loans into one, so you have just one EMI payment to make.
- Regular payments on the new loan can help improve your credit score.
- You can remove a co-signer from the loan, giving them financial freedom.
Banks & NBFCs Offering Education Loan Refinance Services
Are you looking for banks or NBFCs that offer education loan refinancing? Then look no further because we have listed all the popular banks and NBFCs in India that offer this service. Below you will find their names and some key details about loan refinancing services.
SBI Take-over of Education Loans
The State Bank of India (SBI) offers a refinancing service called the SBI Take-over of Education Loans. You can refinance your study loan of ₹10 lakhs to ₹3 crores using this scheme. Students need to provide 100% value of the loan amount as collateral to get the new loan. This is not applicable to students from premier institutions.
- Take over education loans up to ₹3 crores; minimum amount is ₹10 lakhs
- Flexible repayment plans of up to 15 years
- No processing fees
- No collateral is needed for students studying in premier colleges in India.
IDFC FIRST Bank Education Loan Transfer Scheme
If you need better education loan terms then applying for the IDFC FIRST Bank education loan transfer scheme is a good choice. You can refinance your education loans of up to ₹1.5 crores with this bank. The best part is that up to ₹75 lakhs you do not even need collateral to apply for a refinancing. More details regarding this refinancing scheme is provided below.
- You can refinance your existing education loan of up to ₹1.5 crores with IDFC FIRST Bank
- Collateral is needed for all loans exceeding ₹75 lakhs limit
- The loans must be first-time takeovers to be eligible for this scheme.
Avanse Student Loan Refinancing
Avanse Financial Services Limited is an NBFC in India which is registered with RBI. It offers a loan refinancing facility using which you can get a better interest rate on your existing education loan. Details regarding the refinancing facility of Avanse are provided below.
- Up to 100 basis points lower interest rates than the current education loan provider
- No processing fees for the new refinanced loan
- The foreclosure charge from your existing loan will be covered by Avanse.
Best Time to Refinance Your Education Loan
Refinancing your education loan is a smart choice if you pick the right time to refinance your loan. Below we have explained a few scenarios when you should consider refinancing your study loan.
After Getting a Better Job
When you applied for an education loan your financial condition was weak and thus the risk associated with granting you a loan was high. This is why most of the students get a study loan at a higher interest rate. However, things change when you get a high-paying job after completing your course. So once you secure a well-paying job you should consider refinancing your education loan. This will help you negotiate a better interest rate and a longer repayment duration.
At the End of the Loan Repayment Duration
Suppose things are not going as you expected them to be after graduation. You expected to get a good position and a high-paying job, but due to some reasons, you did not get that. Thus you could not pay the EMIs on time and extended your loan duration to make the EMI smaller. But now you are at the end of the rope and you are struggling to pay the EMIs then you should consider refinancing. By doing so you can negotiate a better interest rate and a longer repayment period which will help you in repayment of your education loan.
When the REPO Rate Goes Down
When the Reserve Bank of India lowers the REPO rate then all the banks in India start offering loans at a lower interest rate. If your existing education loan has a high interest rate and you have not opted for a floating interest rate then you should consider getting your study loan refinanced. You can connect with your new bank, explain your situation and request a refinancing of your education loan.
When You Have Multiple Loans
There are times in our lives when we have to take multiple loans along with education loans. Let’s suppose you have a ₹20 lakh education loan but you need ₹50,000 loan for your personal expenses, thus you now have two loans under your name. Sometimes the number of loans becomes 4 or 5 for some students. Managing the EMIs of so many loans can be hectic and you may miss paying EMIs sometimes which may lead to bad credit scores. Then the best solution for you is to refinance all your loans and make it a single loan for which you can easily pay your EMIs.
Things to Consider While Applying for Student Loan Refinancing
By now you must have understood what is the meaning of student loan refinancing and why you should do it. But it is also important to know that there are some factors that you need to consider before you apply for loan refinancing. We have mentioned these factors below.
- When you try to foreclose your existing education loan the bank may ask you to pay a foreclosure penalty. You need to verify whether your bank asks for such fees or not. If they do then you need to mention that when refinancing your loan to get that amount from your new bank.
- You must improve your credit score before applying for an education loan refinancing. A good credit score and a good credit history indicate that the student has been practicing healthy financial activities thus the new refinanced loan terms will be more favourable to you.
- When you apply for an education loan refinancing you must make sure that you apply it at a registered bank or NBFC. Do not fall prey to fraudulent loan websites that offer loans at a very low interest rate. Also, read the terms and conditions of the new loan carefully.
Student Loan Refinancing Process
Refinancing your education loan is a very big financial step and you can not afford to make any mistakes. That is why we have provided a detailed step-wise guide to help you through the process of education loan refinancing.
Step 1: Contact your bank which is currently providing you with a study loan.
Step 2: Express your intent to loan foreclosure and get all the required documents from them.
Step 3: Start looking for a new financial institution like a bank or NBFC which offers a loan refinancing facility.
Step 4: Check the eligibility criteria and then apply for a loan refinancing.
Step 5: Provide your new bank with the details of all your existing loans.
Step 6: The new bank will then grant you a cheque for the outstanding amount of your education loan.
Step 7: Submit the cheque to clear all your existing loans and then you will be done with the education loan refinancing process.
Documents Required During Education Loan Refinancing
The following documents should be kept ready when you are going to apply for a study loan refinancing.
- Documents from the previous lenders like loan sanction letters, EMI payment proofs, etc.
- Passport size photographs
- Admission proof
- Aadhar Card and PAN Card of the applicant and the co-signer
- Residential proof like a domicile certificate
- Proof of income of the applicant
- Bank account statements
- Income tax returns
- Legal documents of a collateral asset
FAQs
Q. What is student loan refinancing?
Student loan refinancing means taking a new loan from a different lender to pay off your current student loan. The goal is to get a lower interest rate, reduce monthly payments, or change your loan term to better suit your budget.
Q. Is it worth refinancing my student loans?
Yes, it can be worth it if you get a lower interest rate or better repayment terms. This can help you save money over time and make your monthly payments more manageable. But make sure you compare lenders and understand all the terms before deciding.
Q. What is the best way to refinance a student loan?
The best way is to research and compare different lenders. Look for low interest rates, flexible repayment options, and no hidden fees. Check your credit score, gather your loan details, and apply online or at a bank that suits your needs.
Q. Can student loans be forgiven if you refinance?
Once you refinance a student loan with another lender, you can lower your interest rate, increase your repayment period, lower your EMIs, etc. But you can not get it forgiven using refinancing.
Q. Will refinancing my education loan affect my credit score?
Yes, applying for refinancing may cause a small, temporary drop in your credit score. But if you make payments on time, your score can improve over time. A better credit score may also help you get lower interest rates in the future.
Q. What is a first-time takeover in education loan refinancing?
The term first-time takeover in education loan refinancing means the existing loan was not taken over before by any other bank. It is one of the eligibility criteria for applying for loan refinancing.