How to Refinance Your Education Loan for Better Terms?

Paying for education is a big worry for students, and while loans help, paying them back can be tough. One good way to reduce this financial stress is through education loan refinancing. In this guide, we will look at the important points of education loan refinancing, how to do it and how it can help students.

Understanding Education Loan Refinancing 

Education loan refinancing means getting a new loan at a different interest rate to pay off your current education loan. The main aim is to get better terms and conditions. 

Think about taking an education loan quickly, but ending up with high interest rates and tough conditions. Refinancing helps students change to a lender that offers better deals. Most Indian lenders, including public and private banks and non-banking finance companies (NBFCs), have options for education loan refinancing.

How Can You Save Money through Refinancing?

Many students don’t know that interest rates on refinanced education loans are usually lower. Let’s look at an example: if you took a loan of INR 20 lakhs at 12%, you would end up paying INR ₹1279794.24 in interest over 9 years. But if you refinance at a 10% interest rate after graduating (in 7 years), your interest payment would drop to INR ₹1040996.22. That’s a huge difference in the interest rate.

Also, besides getting a lower interest rate, borrowers can switch from a secured loan to an unsecured one if it’s available. This change can help reduce the financial pressure on family members who have to provide collateral.

What is a Suitable Time to Refinance?

The best time to think about refinancing a student loan is when students start working. Having a steady job greatly reduces the chances of not being able to pay back the loan. Lenders feel more secure knowing that borrowers have a stable income, which makes it a good time to ask for better terms and conditions on the new education loan. This could mean getting lower interest rates and better overall loan terms.

Also, during this change, banks get a clear picture of the borrower’s financial situation. With information about income and how much they can repay, lenders are more likely to offer lower interest rates and better deals.

Eligibility Criteria For Refinancing

• Firstly, to refinance a student loan, individuals should already have a loan, whether for studying in India or abroad. 
• They must have finished their studies and started paying back the loan regularly, meaning there shouldn’t be any pending payments to the old lender.
• It’s important to note that working professionals with an existing student loan can also refinance. 
• When deciding if someone can refinance, lenders look at several things, including income, credit history, credit score, how much debt they have compared to their income, their financial habits, job history, and where they live.

What is the Process of Refinancing? 

Here’s a breakdown of the key stages involved in refinancing your loan:

1. Approaching the Current Lender

Start by contacting your current lender and express your intent to refinance. Submit a loan foreclosure application, indicating your decision to pay off the existing loan.

2. Exploring Better Loan Options

Research and identify potential lenders offering more favourable terms. Apply for refinancing with the selected lender and be prepared to provide the necessary documentation.

3. Document Submission

Once you’ve chosen a lender, gather and submit the required documents to support your refinancing application. This may include identification documents, proof of income, and other financial records.

4. Approval and Cheque Issuance

Upon approval, the new lender issues a cheque for the outstanding amount to your previous lender. This process facilitates the closure of the existing loan.

5. Loan Closure

After receiving the cheque, the previous lender officially closed the education loan and released your original documents. This marks the completion of the refinancing process.

Documents Required for Refinancing Education Loans

For a successful education loan refinancing process, gathering the necessary documents is very important. Here’s a list of essential documents to help make the process smooth:

1. Loan Application Form:  

Start by filling out the application form for the refinanced loan. This form will ask for your personal details, loan amount, and other relevant information. Make sure all the information is accurate to avoid delays.

2. Documents from the Previous Lender:  

You need to provide the essential documents from your previous lender. These documents should show the details of your existing education loan, such as the loan amount, repayment status, and any outstanding balance. This helps the new lender understand your current loan situation.

3. Passport Photographs

Include two recent passport-sized photographs. These photographs are often required for identification purposes and should be clear and in good quality.

4. KYC (Know Your Customer)

Submit KYC documents, which include your Aadhar card and PAN card, for both you (the borrower) and the co-applicant. These documents are necessary to verify your identity and address, ensuring that the lender complies with legal requirements. 

5. Proof of Identity and Residence:  

Furnish additional proof of identity and residence for comprehensive verification. This may include documents like a utility bill, rental agreement, or any official correspondence that clearly shows your name and current address. These documents help the lender confirm your identity and where you live.

6. Bank Account Statements:  

Present the bank account statements of the student, co-borrower, or guarantor for the last 6 months. These statements provide insight into your financial behavior, showing your income, expenses, and savings patterns. Lenders often look at these statements to assess your ability to repay the loan.

7. Financial Documents:  

Include financial documents such as an Income Tax Return, proof of income, and a brief statement of assets and liabilities for the parent or co-borrower. These documents give the lender a clear picture of your financial situation, including your earnings, debts, and overall financial health, which are crucial for determining your eligibility for refinancing. 

8. Any Other Documents as Required by the Lender

When refinancing an education loan, the lender may request additional documents based on their specific requirements. These could include updated financial statements, proof of employment, income tax returns, or any other paperwork to evaluate your eligibility for refinancing. Make sure to check with your lender for a complete list of required documents to avoid delays in the process.

Refinancing education loans can help students and working professionals manage their finances better. By knowing how it works and the eligibility criteria, you can save money and make informed choices. 

To find the best refinancing options, seek help from a financial expert. You can apply for a new education loan or inquire about refinancing your current loan. Take charge of your financial future by making smarter decisions!

Propelld serves as a dependable ally for students seeking education loans. With a strong grasp of the education landscape, Propelld also provides valuable insights into courses and colleges, enabling students to make informed decisions regarding their education.

Why Propelld?

The following are the primary benefits of Propelld.

Particulars	Details
Max Loan Amount	50 Lakhs
Collateral	Not Required
Moratorium	Available
Processing Time	10 Times Faster than Banks
Disbursal Time	7 Days
Approval Rate	Higher than Other Banks
Special USP	Marks Based Approval
% Financed	100% of Fees

FAQs on Education Loan Refinancing