Why A Bank Would Decline An Education Loan With Collateral - Common Reasons | GyanDhan

Educational loan began as an incentive in 2001 for meritorious students looking to further their studies in professional and technical fields, but have no financial means to do so.


This is a companion discussion topic for the original entry at https://www.gyandhan.com/blogs/common-reasons-why-a-bank-would-decline-education-loan

Does being declined hurt credit?

If my education loan is declined, should I wait to reapply as it will be on my credit file? Does it influence the decision in the second attempt?

Absolutely not. Your credit score or CIBIL represents your credit worthiness and your ability of repaying your loan. It ranges from 300 to 900. A CIBIL score of 700 and above is considered good - closer it is to 900, the better your chances of getting approved for a loan.
Factors that impact your CIBIL score are -

  1. Delayed payments
  2. Taking on too many loans and credit
  3. Exceeding your credit limit

A good mix of secured and unsecured loan will have a good impact on your score in addition to paying your EMIs on time and keeping your debt low.

what happens to the education loan if my visa application is rejected?

The amount of the education loan is disbursed only after all the formalities are completed. So if your visa application is rejected before disbursement, you won’t have to make any repayment or interest payments. This is, in the case, you drop your plans to study abroad. Else, you can reapply for the visa with the same education loan.

Is there any lender that offers an education loan before admission? The university I applied to hasn’t sent an admit letter yet.

Is CIBIL score mandatory while applying for an education loan?

Some NBFCs like HDFC Credila and InCred offer education loans before you receive an admit letter.

CIBIL score represents your credit worthiness. It is not mandatory but will be checked by the lender while evaluating your profile. CIBIL score of the student and the parent(s) is usually checked. A good score (700 and above) improves your chances of getting the loan. Though, a bad score won’t hamper your chances and the score can be improved.
The importance of CIBIL also depends on the type of loan you take. For example, CIBIL and the income of the co-applicant are important factors while applying for an unsecured education loan.

Quite a few lenders (NBFCs and international lenders) now offer conditional loans which are linked to your admission confirmation. In such cases, you can get a tentative approval before getting the actual admit letter.

A loan rejection does not impact your credit score directly. However, you would have applied for a loan which allows the lender to do a ‘hard pull’ on your credit report. This inquiry is stored in the report and the number of inquiries does have an impact on your credit score.

Similarly, a loan rejection will not necessarily be reflected in your credit report. However, multiple inquiries in quick succession could be perceived as an indicator of risk by some lenders and it will also impact your credit score. A declined education loan should not deter you from applying elsewhere but be sure that you don’t end up applying for multiple loans (credit cards etc.) at once

CIBIL report will be pulled for all signatories (borrower, co-applicant) to the loan agreement. It is not necessary that you have a CIBIL score. If you don’t have a CIBIL score, which is common for a lot of students or new graduates as they might have never used a credit product, your report will return a value outside of the 300-900 range and is treated accordingly by the lender.