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This is a companion discussion topic for the original entry at https://www.gyandhan.com/blogs/margin-money-in-education-loan
If I’m taking an education loan with 15% margin, do I have to pay the margin money before the bank gives me the loan?
Also, do we have to repay our education loan with margin money or without margin money?
Yes, you will have to arrange the margin money before the bank disburses your loan amount.
Margin money is the customer’s contribution in the loan amount. For example, in SBI’s Global Ed-Vantage loan scheme there is a 10% margin money. So, if the loan amount sanctioned is INR 30 lakhs, you will have to contribute 10% which is INR 3 lakh.
There are two ways to deposit the amount -
- You can either directly pay the university this amount and show the receipt to the bank, after which they will transfer the rest of the amount.
- Or you can deposit the money in the bank account after which the bank will transfer the entire amount to the university.
You will have to arrange the margin money depending on the disbursed amount. If the bank has disbursed only a part of your sanctioned amount then you will have to arrange 10% of the same.
I hope this clears your doubt.
No, you will not have to repay your education loan with margin money. The interest is charged only on the disbursed amount and not on the whole sanctioned amount.
There is a difference between loan amount that is sanctioned and the loan amount that is disbursed.
For example, you require INR 40 lakhs for your abroad education. The bank sanctions INR 35 lakhs for your loan. Margin money will be calculated on this amount. Let’s say it is 10%. The amount you will have to arrange will be INR 3.5 lakhs.
During the course of your abroad education, you request the bank to disburse only INR 30 lakhs, then the effective margin money will also reduce to INR 3 lakhs.
Margin money is not a part of the repayment process and the interest will only be charged on the amount that the bank disburses.
Hi, please tell me if I can repay the loan early? Are there any penalty charges on early repayment?
Yes, you can repay the education loan early. However, the penalty charges depends on the lender and the loan terms. It will be clearly mentioned in your agreement letter if prepayment will incur any charge or not. If you have taken a loan from an NBFC, before prepayment make sure that your loan agreement does not include any charges as they tend to put that clause in the contract.
Thank you for your prompt answer.
Another thing I wanted to know, is it worth paying the education loan early?
I have already planned my finances for the coming years. Is it worth disturbing the plan?
It is always beneficial to pay off your loan if you have the funds. It will not only make you debt-free but also save the money you’d pay as interest.
What is the maximum margin money that a student will have to contribute?
The margin money depends from lender to lender and on your specific requirement. Some lenders charge 10% or 15%. So, for example, you are taking an education loan of INR 40 lakhs from SBI, the margin money would be INR 4 lakhs, which you will have to contribute towards your expenses.
If the bank sanctions the loan at a higher margin of 35% then is there any way to reduce the margin during disbursement ?
If the bank has sanctioned the loan with a higher margin of 35%, you may wonder whether there’s a possibility to reduce the margin during the disbursement phase. While each bank’s policies and procedures can vary, here are some general insights that might help you understand your options:
- Communication is Key: The first step is to communicate with your loan officer or a representative from the bank. Express your concerns and inquire about the feasibility of reducing the margin. They can provide you with specific information about the bank’s policies and whether any flexibility is available.
- Loan Agreement Review: Review the loan agreement you’ve signed with the bank. This document outlines the terms and conditions of the loan, including the margin. Look for any clauses or provisions that discuss the possibility of adjusting the margin during the disbursement phase.
- Circumstances Consideration: Some banks might consider reducing the margin if there have been changes in your circumstances since the loan was initially sanctioned. This could include improved financial stability, additional scholarships, or other sources of funding that weren’t available at the time of application.
- Academic Performance: If your academic performance is outstanding, some banks may be willing to re-evaluate the loan terms. Demonstrating your dedication to your studies and your commitment to excelling academically could potentially influence their decision.
- Financial Documentation: Prepare any necessary financial documentation that supports your request for margin reduction. This could include proof of additional funding sources, updated income statements, or any other relevant financial information.
- Negotiation: Treat the situation as a negotiation rather than a demand. Approach the bank with respect and a clear rationale for your request. Be open to discussing options and finding a solution that works for both parties.
- Bank’s Discretion: Keep in mind that banks have the discretion to assess each case individually. While some banks might offer flexibility, others might have stricter policies. It’s essential to understand that any adjustment to the margin is subject to the bank’s approval.
Remember that the decision to reduce the margin during the disbursement phase ultimately rests with the bank. It’s advisable to communicate with the bank as early as possible, present your case. Each bank may have its own process for reviewing and approving such requests.