It will take a decade or longer to pay off student loans. Over time, you may get frustrated with the lender, the loan terms or the loan servicer, or a combination of all three. It is quite possible to move the existing college loan from one bank to another one and to potentially make financial profits from such a student loan transfer. You will also get a greater amount of credit in addition to lowering the interest rate. Yet you ought to weigh both the pros and cons involved with such a debt swap instead of immediately running into it.
What’s a Student Loan Transfer?
Here’s how the conversion of an education loan functions. Let’s say that you have taken an education loan from NBFC overseas because of their shorter processing period and a year later, you are not happy with their education loan repayment scheme and would like to apply for a student loan refinancing from a public bank. In such a scenario, you may apply for a student loan transfer from your NBFC to a banking institution, here’s how you should manage it.
Process of Student Loan Transfer
1. When you finally decide if you wish to move the loan, your old lender can send you a statement on the remaining balance of the loan to be repaid.
2. Following this, the document must be sent to the bank offering the student loan with refinancing.
3. Upon receipt of this statement, the loan process will proceed as normal. Once the loan has been sanctioned, the new bank will send a check to clear all unpaid fees of the previous lender.
The interest rate of takeover loans is often smaller than that of fresh loans which are because the risk factor related to a new bank is very minimal.
What Are the Eligibility Criteria for the Transfer of An Educational Loan?
A loan applicant may only opt for the student loan transfer if-
- There are no more disbursements that the loan applicant must take from their current lender’s loan. It means that your previous bank has already disbursed whatever loan amount had to be disbursed and the loan applicant can not borrow any more money from the previous loan.
- repayment on your old debt has already begun, in the form of EMIs.
Before you plan to move your education loan, you must keep some things in mind, such as processing costs, interest costs for education loans, and other expenses, to see if your final outflow will be less or more.
Check out your final financial outflow
By offering lower EMIs, at a low student loan interest rate and a longer maturity schedule, modern banks aim to draw buyers, which may seem appealing on the face of it, but it may turn out to be more costly in the final analysis. So, determine how much you would potentially pay in both scenarios, and then consider which situation will be more appropriate for you. Experts will advise you to stick with your current bank and pay greater EMIs if you are not too hard-pressed for cash, finish off your loan sooner, even if the interest rate for education loans is higher, and rest easy.
It is important to calculate processing and other fees beforehand
Think how much you are paying out, and what the new bank will charge for a transaction tax, stamp tax, appraisal cost, and legal costs, then balance it against the interest rate cut. If you find that the new education loan in India is still cheaper after taking these items into consideration, then you should go with it, or else stick to the old education loan.
Associated account requirements
If you take out an education loan in India, banks normally require you to open a savings account with them so that they can route your EMIs via it. So, if you intend to transfer student loan to another bank, this aspect would also need to be taken into consideration closing one saving account and opening another with another bank, and the costs it will require.
Personal relationships do matter in banking, as in all other sectors; they will make the operation and procedures simpler. In other words, the simplicity of doing business leads to a great deal of peace of mind. If you transfer student loan to another bank and the workers don’t comply much, it will only raise your problems, mess with your professional job, and make life more complicated in general. So, in those cases, student loan transfer may not be worth it.
Collateral ratio to outstanding ratio
If you’ve already repaid a substantial part of your loan, don’t give your current bank absolute original collateral. Why would you agree to offer a security that is double the value of your loan outstanding? Instead, you can use it to take an extra loan, if the need emerges. Give a smaller sum of collateral to the current bank. And if the bank also persists on the same matter, bargain more to lower the interest rate.
Some Other Terms and Conditions For the Student Loan Transfer
If you plan on transferring your current education loan from one bank to another during the student loan transfer of collateral, the new bank will take over your existing collateral.
You may have to place valuable collateral with a particular public bank if you have an existing non-collateral loan with your current lender and you want to transfer student loan to another bank, which mostly lends collateral-based loans. No loan margin occurs. You will be granted a 100 percent credit on the collateral value by the public bank to which you plan to move the education loan.
If you have used a moratorium on your equalized monthly installments (EMI) and are planning to move your loan to another bank with a lower interest rate, it is possible that your proposal will be denied. On the basis of the credit policies and risk appraisal of the issuer, not all balance student loan transfer demands submitted by borrowers who applied for a moratorium may be authorized by the creditors. This is because the lender would conclude the borrowers who applied for a moratorium are facing cash flow difficulties. So, until they can persuade shareholders that their cash flow issues have been fixed, it can be tough to get a loan transition completed.
It may, thus, be concluded that an educational loan may be transferred from one bank to another. But there is a need to be aware and to take into consideration all the factors mentioned above before deciding whether to transfer the educational loan or not.